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| vol 20, num 3 | July 2021 |
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| Wave of New Mass Litigation-Driven Bankruptcies May Test the Limits of Nonconsensual Third‑Party Releases |
| Since the passage of the modern version of the Bankruptcy Code in 1978, chapter 11 has been used as a tool by debtors to address mass litigation liabilities. While there are certain limitations and exceptions, chapter 11 can be a preferred avenue to address mass litigation liabilities because (1) the automatic stay of § 362 of the Bankruptcy Code generally halts most pending litigation, (2) cases pending in different jurisdictions around the country potentially can be removed and consolidated in front of a single court for resolution pursuant to 28 U.S.C. § 1452, and (3) the related liabilities from such litigation generally can be discharged
by the debtor pursuant to § 1141 of the Bankruptcy Code.
In addition to these and other relevant statutory provisions in the Bankruptcy Code, chapter 11 cases seeking to address mass litigation liabilities have seen the development of third-party release provisions and related channeling injunctions that limit or extinguish the liability of nondebtors. In effect, in exchange for a large contribution of value to fund recoveries for litigation claimants, a nondebtor entity with a close relationship to the debtor effectively obtains the benefit of the discharge under § 1141 of the Bankruptcy Code through a broad channeling injunction and release of claims. Indeed, the use of such third-party releases and channeling injunctions to address the massive litigation liabilities arising from asbestos exposure was codified with the addition of § 524(g) to the Bankruptcy Code in 1994.
However, for mass litigation liabilities that are not related to asbestos exposure, there is no specific provision in the Bankruptcy Code authorizing such channeling injunctions for the benefit of nondebtors. Moreover, there is a split of authority among the circuit courts regarding the propriety of such provisions. |
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| ABI's "Industry Viewpoints" |
| Want to learn more about the different industries that bankruptcy affects?
ABI’s got you covered! Check out our “Industry Viewpoints” video series, featuring ABI Editor-at-Large Bill Rochelle discussing various industries with prominent bankruptcy professionals. The first four conversations have been previously posted on our social media platforms (Facebook, Twitter, LinkedIn and YouTube).
Make sure to check out Bill’s most recent conversation with Scott A. Wolfson of Wolfson Bolton PLLC (Troy, Mich.) on the auto industry.
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| Previous guests of “#IndustryViewpoints” have included:
Be sure to view the ABI YouTube Channel and follow ABI on social media (twitter.abi.org, facebook.abi.org or linked.abi.org) to be notified of upcoming episodes!
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| Business Reorganization Committee Leadership for 2021 |
| The Business Reorganization Committee is proud to announce our new leaders for 2021!
You can also visit the committee's homepage for more newsletter articles, relevant recordings and other committee information.
The committee is always eager to welcome new volunteers. Please contact any member of our leadership team to find out how you can get involved.
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