On May 30, 2023, the U.S. Court of Appeals for the Second Circuit affirmed a bankruptcy court’s confirmation of a chapter 11 reorganization plan containing nonconsensual releases of direct claims against third-party non-debtors, including the debtor’s controlling owners, the Sacklers.

In In re Purdue Pharma, L.P., 1 U.S. District Court Judge Colleen McMahon of the Southern District of New York vacated Purdue Pharma’s confirmed plan of reorganization after finding that the bankruptcy court below did not have statutory authority to issue a confirmation order granting non-consensual third-party releases—namely for the benefit of the Sackler family, which owns Purdue.

On Dec. 16, 2021, U.S. District Court Judge Colleen McMahon in the Southern District of New York vacated Purdue Pharma’s confirmed plan of reorganization after finding that the Bankruptcy Court below did not have statutory authority to issue a confirmation order granting non-consensual third-party releases — namely for the benefit of the Sackler family who owns Purdue. In re Purdue Pharma, L.P., Case No. 7:21-cv-08566 (S.D.N.Y. Dec. 16, 2021).

On Oct. 27, 2020, Judge Marvin Isgur for the U.S. Bankruptcy Court for the Southern District of Texas held that (1) a make-whole premium was not interest or unmatured interest and thus not subject to disallowance, (2) a make-whole claim was enforceable as liquidated damages under New York law and (3) the solvent debtor exception survived the enactment of the Bankruptcy Code and the Noteholders were entitled to postpetition interest at the contractual default rate.

In a recent opinion – In re Heritage Home Group LLC, et al., Case No. 18-11736 (KG), 2018 WL 4684802 (Bankr. D. Del. Sept. 27, 2018) – the Delaware Bankruptcy Court addressed the longstanding issue of which professional persons must be retained under section 327(a) of the Bankruptcy Code.

A fundamental tenet of chapter 11 bankruptcies is the absolute priority rule. Initially a judge-created doctrine, the absolute priority rule was partially codified in section 1129(b)(2)(B)(ii) of the Bankruptcy Code. Under section 1129, plans must be “fair and equitable” in order to be confirmed.

Background: Professionals’ Fees in Chapter 11 cases