Last year, the U.S. Supreme Court struck down the use of nonconsensual third-party releases in Chapter 11 reorganization plans as not authorized under the Bankruptcy Code.1 While the Harrington v. Purdue Pharma decision involved mass tort liability, the broader curtailment of third-party releases in all contexts should cause directors and officers to reevaluate their personal liability exposure when companies enter the zone of insolvency.
Prior to Purdue, Chapter 11 plans routinely featured broad third-party releases in favor of the debtor’s directors and officers, insulating those individuals from any and all claims associated with the conduct of the business prior to and during the bankruptcy proceeding. The…
