Bankruptcy & Restructuring Update - August 2025

The Evolving Role of Chapter 15 in Corporate Restructuring

Before 2024, courts were divided over the permissibility of non-consensual third-party releases in bankruptcy cases.  Some courts permitted non-consensual third party releases in limited circumstances, but others held that the Bankruptcy Code does not permit non-consensual third-party releases except in asbestos cases to the extent set forth in 11 U.S.C § 524(g). 

In 2024, however, the Supreme Court in Harrington v. Purdue Pharma L.P., 603 U.S. 204 (2024), resolved these discrepancies; it ruled that the Bankruptcy Code does not authorize bankruptcy courts to enforce non-consensual third-party releases in chapter 11 cases (except for asbestos cases, under 11 U.S.C § 524(g)).  Harrington v. Purdue Pharma L.P. has been widely covered.  Two recent decisions by bankruptcy courts in New York and Delaware highlight a way that companies can get around that decision by using chapter 15 of the Bankruptcy Code to enforce non-consensual third-party releases entered by non-U.S. courts. 

Chapter 15 of the Bankruptcy Code provides mechanisms for dealing with insolvency cases involving more than one country.  Generally, chapter 15 cases are “ancillary” to primary proceedings brought in another country.  Upon recognition of the foreign proceeding as a “foreign main proceeding” by the United States bankruptcy court, the automatic stay and other selected provisions of the Bankruptcy Code take effect within the United States.  The “foreign representative” may also seek additional “assistance” under section 1507(b) or additional relief under section 1521(a), such as seeking a stay of any action or proceeding “concerning the debtor’s assets, rights, obligations, or liabilities.”

In recent years, many non-United States jurisdictions have “liberalized” their restructuring laws to become more debtor-friendly, and allow for non-consensual third-party releases.  Examples of such countries include the Netherlands, Germany, France, the United Kingdom, Brazil, Canada, and Mexico.

Before Harrington v. Purdue Pharma L.P. , there was a split in authorities – whereas some bankruptcy courts enforced non-consensual third-party releases entered by foreign courts as a matter of comity, the Fifth Circuit did not.  Compare In re Avanti Communications Group. PLC, 582 B.R. 603 (Bankr. S.D.N.Y. 2018) (enforcing a scheme of arrangement sanctioned by a court in England that included nonconsensual third-party releases), In re Sino-Forest Corp., 501 B.R. 655 (Bankr. S.D.N.Y. 2013) (same, Canadian court), and In re Metcalfe & Mansfield Alternative Investments, 421 B.R. 685 (Bankr. S.D.N.Y. 2010) (same, Canadian court) with Vitro S.A.B. de C.V. v. ACP Master, Ltd. (In re Vitro S.A.B. de C.V.), 473 B.R. 117 (Bankr. N.D. Tex.), (denying enforcement of a Mexican plan of reorganization that would have permanently enjoined suits in the United States against debtor’s non-debtor subsidiaries on a non-consensual basis). The Fifth Circuit in vitro explained that bankruptcy courts could enforce non-consensual third-party releases entered by foreign courts, but required “something comparable” to the “extraordinary circumstances” required under the Bankruptcy Code. Aff’d, 701 F.3d 1031 (5th Cir. 2012). 

Following Harrington v. Purdue Pharma L.P., two bankruptcy courts have enforced non-consensual third-party releases in the chapter 15 context.  In In re Crédito Real, S.A.B. de C.V., SOFOM, E.N.R, 2025 WL 977967 (Bankr. D. Del. Apr. 1, 2025), the court granted recognition of a Mexican reorganization plan that incorporated non-consensual third-party releases, explaining that doing so promoted comity and was not manifestly contrary to United States public policy.  And in In re Odebrecht Engenharia e Construção S.A. – Em Recuperação Judicial, 2025 WL 1156607 (Bankr. S.D.N.Y. Apr. 21, 2025), the court recognized a Brazilian plan.  Although that plan did not contain non-consensual third-party releases, the proposed order had language creating a non-consensual third-party release.  The court, relying on Crédito Real, explained that Harrington v. Purdue Pharma L.P. did not apply to chapter 15, and that such releases are not “manifestly contrary” to United States public policy.  

The Crédito Real and Odebrecht cases may be the beginning of a trend of using chapter 15 as a route to effectuate non-consensual third-party releases that are otherwise unavailable in chapter 11.  However, questions remain, particularly in light of the Fifth Circuit’s decision in Vitro, as to what a foreign representative will be required to prove in order to enforce a foreign non-consensual third-party release.  How will courts look at comity and public policy considerations in a post-Harrington v. Purdue Pharma L.P. world?  Does Harrington v. Purdue Pharma L.P. change whether these releases are “manifestly contrary” to United States public policy?  How courts address these questions will determine the long term viability of using chapter 15 to get around Harrington v. Purdue Pharma L.P.