Circuit courts are divided as to whether provisions of a bankruptcy plan of reorganization may release a non-debtor from creditors’ claims over the objection of a non-consenting creditor (i.e. non-consensual third-party releases). A majority of courts will permit non-consensual third-party releases under certain limited circumstances. This issue has been in the news recently with speculation that the treatment of non-consensual third-party releases was a contributing factor in the decision by the debtors in the Caesars bankruptcy cases to file for bankruptcy in the Bankruptcy Court for the Northern District of Illinois (which is located in the Seventh Circuit—a circuit that permits non-consensual third-party releases and applies a less stringent test).
In a March 12th decision, the Eleventh Circuit addressed the issue of non-consensual third-party releases in the case of SE Property Holdings, LLC v. Seaside Engineering & Surveying, Inc., (In re Seaside Engineering & Surveying, Inc.). In its decision affirming the approval of a plan of reorganization that provided for a non-consensual third-party release, the Eleventh Circuit provided a refresher on the circuit split and joined the majority of courts that permit these releases under limited circumstances. Continue Reading