Opinion has potential implications for a broader set of parties with potential liabilities affected by a Chapter 11 process.

The U.S. Supreme Court reversed confirmation of Purdue Pharma’s Chapter 11 bankruptcy plan of reorganization on the basis that its non-consensual third-party releases were not permissible. It held that the Bankruptcy Code does not authorize the inclusion of a release in a plan that effectively seeks to discharge claims against a non-debtor without the consent of affected claimants. The decision prohibits an approach to global resolution of mass tort litigations that has been utilized in numerous cases over the last 40 years.

Takeaways

A bankruptcy trustee or a debtor in possession has powers under the Bankruptcy Code to avoid certain transfers the debtor may have made prior to the petition date, including preferential and fraudulent transfers.