In a highly anticipated decision issued last Thursday (on December 19, 2019), the United States Court of Appeals for the Third Circuit held in In re Millennium Lab Holdings II, LLC that a bankruptcy court may constitutionally confirm a chapter 11 plan of reorganization that contains nonconsensual third-party releases. The court considered whether, pursuant to the United States Supreme Court’s decision in Stern v. Marshall, 564 U.S. 462 (2011), Article III of the United States Constitution prohibits a bankruptcy court from granting such releases.

This decision of the Chancery Division is a useful reminder to lenders of the Court’s power to set aside a transaction intended to defraud a creditor under s.423 of the Insolvency Act 1986.

The Facts

The Defendant, Mr Ahmed, was registered as the proprietor of two properties known as High Elm and Hilltop (the “Properties”). The Claimant advanced monies to be secured over the Properties by second legal charge. The Defendant fell into arrears and the Claimant commenced possession proceedings.