Alert
Alert
03.14.25
On June 27, 2024, the U.S. Supreme Court issued a long-awaited ruling regarding the validity of nonconsensual third-party releases in the chapter 11 plan of pharmaceutical company Purdue Pharma. In Harrington v. Purdue Pharma L.P., the Supreme Court held that absent consent from the affected claimants (i.e., holders of more than $40 trillion in mass tort claims), the Bankruptcy Court lacked the power to approve a plan provision releasing Purdue’s founders, the Sackler family, from such alleged liabilities. In reaching that result, the Supreme Court concluded that nonconsensual third-party releases fall outside the scope of section 1123(b) of the Bankruptcy Code, which limits the types of provisions a bankruptcy plan may include. It also reasoned that nonconsensual third-party releases contravene section 1141(d), which provides a “discharge” from liability only to a “debtor.”
Although the Supreme Court’s decision may have resolved a circuit split over the permissibility of nonconsensual third-party releases in chapter 11 plans, it casted a spotlight on a separate legal question: Can a U.S. Bankruptcy Court grant comity to, and thus enforce (pursuant to the provisions of chapter 15), a nonconsensual third-party release issued in a foreign restructuring proceeding?
In a ruling from the bench issued on March 11, 2025, the U.S. Bankruptcy Court for the District of Delaware answered that question in the affirmative.
Background to Crédito Real’s Concurso Mercantile
The Bankruptcy Court’s decision stems from the concurso mercantile proceeding of Crédito Real, which was one of the largest non-bank lending institutions in Mexico. After experiencing severe liquidity constraints following the start of the COVID-19 pandemic, which led to defaults on bond payments, the company filed a concurso mercantile in Mexico in October 2023. A concurso mercantile is a Mexican court-supervised process aimed at restructuring distressed companies.
After spending several months in the concurso mercantile, Crédito Real submitted a proposed plan (the “Concurso Plan”) to its creditors on May 21, 2024. The Concurso Plan was ultimately approved by creditors holding 56.55% in aggregate outstanding amount of Crédito Real’s unsecured claims and was thereafter approved by the Mexican court overseeing the proceeding. Under the terms of the Concurso Plan, which incorporated the terms of a settlement agreement (the “Settlement Agreement”) with certain supporting creditors (Participating Recognized Creditors), all of the company’s remaining assets were transferred to a wind-down trust, which was charged with liquidating those assets and distributing the proceeds to creditors.
The Concurso Plan also contained a third-party release provision that released creditor claims against various non-debtors, including Crédito Real’s directors, officers and shareholders. The release provision provided, in relevant part, as follows:
In any event, [Crédito Real] and the [creditors subject to the plan] agree not to bring any action, complaint, claim or demand, as the case may be, against the Participating Recognized Creditors nor [Crédito Real], respectively, as well as their shareholders, its former general manager Felipe Guelfi Regules, liquidator, directors, officers, secretaries, depositaries and officers, and The Bank of New Mellon, as trustee for [Crédito Real’s] foreign denominated bonds denominated in U.S. dollars, legal tender in the United States of America, and euros, legal tender in the European Union, as the case may be, for any act or omission incurred by them during the Bankruptcy Proceeding and at any time prior to the execution of th[e] [Settlement] Agreement, except for actions, complaints, claims or demands, as the case may be, for acts or omissions of [Crédito Real] that have caused damage or impairment to the Bankruptcy Estate and that they have failed to declare or disclose to the Participating Recognized Creditors during the negotiations of th[e] Settlement Agreement and up to the date of its execution.
The Bankruptcy Court’s Recognition Order
On February 7, 2025, Crédito Real filed a petition in the U.S. Bankruptcy Court for the District of Delaware seeking an order (a) granting recognition of its concurso mercantile pursuant to chapter 15 of the Bankruptcy Code, and (b) extending comity to, and thus giving effect in the United States to, the Mexican court order approving the Concurso Plan.
The petition faced an objection from a U.S. creditor, which had also objected to the Concurso Plan in Mexico. In its objection, the U.S. creditor contended that the Concurso Plan’s third-party release was not authorized by the Bankruptcy Code, emphasizing the Supreme Court’s Purdue decision. The U.S. creditor also asserted that the Bankruptcy Court should decline to enforce it under section 1506 of the Bankruptcy Code, which authorizes Bankruptcy Courts to refuse to take any action that “would be manifestly contrary to the public policy of the United States.”
In a decision issued from the bench, the Bankruptcy Court overruled the U.S. creditor’s objection and indicated that it would issue an order (a) granting recognition to the Mexican proceeding, and (b) extending comity to the Concurso Plan. The court noted that the Supreme Court’s decision in “Purdue only goes so far,” because “it is expressly limited to chapter 11.” The Purdue decision rested on the language of sections 1123(b) and 1141(d) of the Bankruptcy Code, which do not apply in chapter 15 cases.
Moreover, as the court explained in its ruling from the bench, a long line of chapter 15 precedent holds that “a foreign plan doesn’t have to comport with what” would be authorized in a chapter 11 case to be recognized, “unless [a provision in the foreign plan] is manifestly contrary to public policy.” The court found, however, that section 1506’s public policy exception was not implicated because Congress authorized nonconsensual third-party releases in the context of toxic tort asbestos cases under section 542(g) of the Bankruptcy Code. Thus, the court reasoned that nonconsensual third-party releases cannot be said to be manifestly contrary to U.S. public policy.
Conclusion
The Bankruptcy Court’s order gives the Concurso Plan, including its third-party release provisions, full force and effect in the United States even though those same releases would not be available in a chapter 11 case.
As highlighted in a prior alert, another Bankruptcy Court recently granted recognition to a UK proceeding and extended comity to a UK scheme of arrangement that contained nonconsensual third-party releases. However, in that case, there were no objections and the Bankruptcy Court’s order thus did not specifically analyze the permissibility of nonconsensual third-party releases in the chapter 15 context. See In re Mega NewCo Limited, No. 24-12031 (MEW), 2025 WL 601463 (Bankr. S.D.N.Y. Feb. 24, 2025).
In any event, neither of these decisions are likely to be the last word on this issue. Nonconsensual third-party releases have become somewhat of a hot-button issue and will unquestionably be challenged in future chapter 15 cases.
(This is another in our series of client alerts related to international and cross-border insolvency issues.)