Restructuring Update: Third-Party Releases After Purdue Pharma – Solutions In Irish Law

In Harrington v Purdue Pharma,¹ the United States Supreme Court held that so-called "non-consensual third-party releases" were not permitted in restructuring plans proposed under Chapter 11 of the US Bankruptcy Code. A "third-party release" arises where creditors are asked to vote on a restructuring plan or scheme which not only proposes to release the debtor company (i.e. the company that has petitioned for bankruptcy or is proposing the scheme) from all liability but to also release other third parties from any associated liability.

The non-consensual nature of third-party releases has come to wider attention in the United States in recent years in connection with mass tort bankruptcies, as claims against, for example, the shareholders and officers of bankrupt companies have been excused from liability in exchange for making a financial contribution to the bankrupt estate, despite dissenting claimants objecting to the confirmation of the restructuring plan.