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.
Ultra court clarifies the requirements for classifying a creditor as “unimpaired” under a plan of reorganization.
Key Points:
• Texas bankruptcy court splits from Third Circuit in finding that a creditor must receive everything it is entitled to under non-bankruptcy law in order for the creditor to be “unimpaired.”
• The decision does not require that unsecured creditors receive post-petition interest but provides that they will be “impaired” if they do not
Second Circuit holds that Bankruptcy Code preempts creditors’ state law constructive fraud claims.
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