In re Purdue Pharma, 2023 WL 3700458, ___F.4th___(2nd Cir. 5/30/23)
In re Purdue Pharma, 2023 WL 3700458, ___F.4th___(2nd Cir. 5/30/23): Second Circuit US Court of Appeals approves Chapter 11 plan in the Purdue Pharma bankruptcy case, which grants releases to non-debtors (the Sackler family, equity holders of bankruptcy debtor Purdue Pharma, which contributed 6 BILLION dollars to fund debtor Purdue Pharma’s Chapter 11 plan.
The Second Circuit US Circuit Court reversed the District Court (which had refused to allow the non-debtor releases, which creditors of Purdue Pharma had not consented to. The Second circuit held that nonconsensual third-party releases of such direct claims are statutorily permitted under 11 U.S.C. §§ 105(a) and 1123(b)(6) of the Bankruptcy Code.
In Purdue, the Sacklers (equity holders of Purdue Pharma, but NOT the bankruptcy debtors, put in 6 BILLION dollars to help fund bankruptcy debtor Purdue’s Chapter 11 plan and got reslease There is a split on this issue among US Courts of Appeal. The Ninth Circuit Court of Appeal does not allow non-debtor third parties to be given a release, even where the non-debtor third party gives money to the bankruptcy debtor to help fund the bankruptcy debtor’s chapter 11 plan, unless all creditors agree to that. The rule in the Ninth Circuit (which includes all of California) is if you want a bankruptcy discharge, or a release, you need to be a bankruptcy debtor.
This Circuit split is almost certain to end up being decided by the US Supreme Court.