With an increased number of businesses experiencing financial difficulties given rising inflation, the weaker pound and interest rate increases, debt restructurings are becoming, and are expected to continue to become, more common.

Such restructurings are often achieved by a third-party lender releasing or materially amending all or part of its debt, which would result in taxable income arising to a UK corporate borrower unless a relevant exemption applies.

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.