O’Melveny Worldwide

New York Law Journal: Navigating the Conflicting Views on Third-Party Releases in Bankruptcy Restructuring Plans, Part II

February 23, 2023

O’Melveny partner John Rapisardi and counsel Jacob Beiswenger co-authored this article focusing on two constitutional issues arising from third-party releases: whether creditor consent to be bound by a third-party release is required to satisfy the due process clause of the Fifth and Fourteenth Amendments to the US Constitution; and whether bankruptcy courts have constitutional authority to issue final orders granting third-party releases in a plan of reorganization under Stern v. Marshall. “Third-party releases play an important role in reorganizing businesses in Chapter 11, especially where the resolution of extensive personal injury, fraud, or similar claims involving the debtors, their insurers, and related third-parties is absolutely necessary for a successful restructuring,” the authors wrote. “But the practical utility of a Bankruptcy Court’s approval of third-party releases in a plan of reorganization cannot undermine a creditor’s constitutional rights to due process and adjudication of their underlying claims by an Article III court.”

Read the full article here.