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CBI’s Principal Dan Glosband Analyzes Cases Allowing Third-Party Releases Under Chapter 15



CBI’s Principal Dan Glosband Analyzes Cases
Allowing Third-Party Releases Under Chapter 15

Schemes of Arrangement (“Schemes”), employed in the U.K and former British Commonwealth countries to restructure funded debt, regularly provide so-called third-party releases – non-consensual releases by creditors of persons in addition to the debtor.  In plenary U.S. cases, third-party releases are rare and subject to rigorous standards; some judicial circuits (the 5th, 9th and 10th) prohibit them entirely. See, e.g. Resorts International v. Lowenschuss, 67 F. 3d 1394 (9th Cir. 1995), cert. denied 517 U.S. 1243, 116 S.Ct. 2497 (1996).  However, in chapter 15 cases that recognize Schemes, courts often also grant comity to the foreign court to enforce the third-party releases, giving priority to this overriding policy of chapter 15.  See In re Metcalfe & Mansfield Alternative Investments, 421 B.R. 685 (Bankr. S.D.N.Y. 2010); see alsoOrder Granting Verified Petiton for Recognition of Foreign Proceeding, Winsway Enterprises Holdings Limited, Case No. 16-10833 (Bankr. S.D.N.Y. 2016).

Dan Glosband recently surveyed the third-party release landscape in an article in Insolvency Intelligence (attached).  After the article was published, the U.S. District Court for the District of Delaware ruled in an appeal from a bankruptcy court order confirming a chapter 11 plan in In re Millennium Lab Holdings II, LLC that the releases of a non-debtor third party’s non-bankruptcy fraud and RICO (a civil cause of action for acts performed as part of an ongoing criminal organization) claims against equity holders was beyond the power of the bankruptcy court.  Under the peculiar limitations on the jurisdiction that may be exercised by bankruptcy judges, who are not appointed under Article III of the U.S. Constitution and who do not have lifetime tenure and protection against salary reduction, the Millenium Court, citing Stern v. Marshall, 564 U.S. 462 (2011), stated that a bankruptcy court does not have final adjudicatory authority over “a private right, that is, of the liability of one individual to another.”

The logic of the cases enforcing third-party releases granted in foreign proceedings would seem to escape this ruling since those cases rely on adjudicatory power of the foreign court not the bankruptcy court.  Nonetheless, the Millennium decision provides ammunition to a party objecting to recognition and enforcement of a scheme of arrangement that includes, as is typical, broad third-party releases.  New York might now be a safer venue choice than Delaware for chapter 15 proceedings that seek recognition and enforcement of schemes of arrangement.

In a cross-border insolvency matter, if an expert opinion is required, if skilled mediation or arbitration can help resolve disputes, or if cross-border insolvency is simply unfamiliar territory, CBI can help. 

We will be pleased to discuss your cross-border insolvency issues and agree on a case-specific arrangement to assist you.  Please reach out to any of us for a quick and easy assessment of how we can help you. We welcome your thoughts, comments and questions. 


Hon. Leif Clark (ret.) was a U.S. Bankruptcy Judge for over 25 years. He has an international reputation for influencing the development of insolvency law both domestically and internationally. He has broad experience in international legislative development, the training of lawyers and judges, scholarship and as a sought-after mediator of complex disputes involving finance and insolvency.
Jack Esher has over 25 years of experience as a mediator, arbitrator and neutral adviser, including mediation of cross-border disputes in the country’s biggest cases. He has conducted mediation and negotiation trainings nationally and internationally for professionals, business leaders and judges.
Dan Glosband has 45 years of sophisticated insolvency practice, focusing on cross-border cases. He was part of the small drafting group for the UNCITRAL Model Law on Cross-Border Insolvency, one of the primary draftsmen of Chapter 15 of the Bankruptcy Code and has been an expert witness on U.S. insolvency law in major foreign proceedings.
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By Dan Glosband