To Err is Human...To Release, Divine

Wilmington and Philadelphia partner Andy Kassner and associate Joe Argentina have co-authored an article for the Legal Intelligencer on the question of when a Chapter 11 plan may contain releases of non-debtors from claims held by the debtors and objecting third parties. Over the years, Chapter 11 plan proponents increasingly have included provisions in Chapter 11 plans of reorganization that provide for release of claims held by third parties in favor of entities associated with the debtors. Although, at first, these releases were often buried in definitions contained in lengthy reorganization plans, in recent years they have attracted greater scrutiny.

Andy and Joe, both members of the firm's Corporate Restructuring Practice Group, discuss the opinion of Bankruptcy Judge Mary F. Walrath of the United States Bankruptcy Court for the District of Delaware, which addressed the issue at length in an opinion issued January 7, 2011, in the Washington Mutual Inc. bankruptcy case. They conclude that the Bankruptcy Court’s decision is a “reminder that courts encourage comprehensive settlements of substantial claims to facilitate the resolution of Chapter 11 cases, but there are limits to what releases can be granted under a Chapter 11 plan.” As such, “[p]arties in interest should review proposed plans of reorganization carefully to understand who is being requested to release claims and what claims are being released.”