Trend Watch: Third Party Releases in US Chapter 15 Proceedings

Written By Jesse Mighton and Shawn Kirkman

Key Takeaways

• United States (US) Bankruptcy Courts have issued orders recognizing and enforcing foreign restructuring orders under Chapter 15 that include nonconsensual third-party releases, notwithstanding the decision in Purdue against such releases.
• These cases demonstrate that Canadian cross-border restructuring proceedings can enhance optionality for such issues and promote successful restructuring outcomes.

Overview

On March 11, 2025, the US Bankruptcy Court for the District of Delaware issued an order under Chapter 15 of the US Bankruptcy Code recognizing and enforcing a restructuring plan under Mexican law that included nonconsensual third-party releases in its decision in Crédito Real.¹ This is, at least, the third decision recognizing such releases post-Purdue.²

The US Supreme Court’s decision in Purdue³ had the effect of prohibiting such releases in Chapter 11 proceedings—a decision which has had significant implications for Chapter 11 restructurings.

The decision in Crédito Real is the latest to recognize and enforce nonconsensual third-party releases in the US since Purdue and, while such relief has been granted under Chapter 15 prior to Purdue for some time, could signal a growing trend in cross-border restructuring proceedings.

Background: The US Supreme Court Decision in Purdue

In Purdue, in a 5-4 ruling, the US Supreme Court ruled that Chapter 11 of the US Bankruptcy Code did not give a Bankruptcy Court the discretion to approve a restructuring plan that includes nonconsensual third-party releases—i.e. court-ordered releases in favour of parties other than the debtor company which can bind stakeholders that did not consent to release claims against the beneficiaries of the releases. In Purdue, the proposed releases would have provided members of the Sackler Family with broad immunity from potential claims that could have been pursued by parties harmed by the opioid crisis. 

Since Purdue a key consideration before US Bankruptcy Courts has been establishing that consent has been obtained where third-party releases are sought.⁴

Nonconsensual third-party releases are often granted by Canadian courts in Canadian insolvency proceedings in connection with a wide range of restructuring transactions, including both plans of arrangement and asset sales, when the circumstances meet the requisite tests for approval. 

However, whether a Canadian order containing such third-party releases would be recognized and enforced under US bankruptcy law through a Chapter 15 proceeding remained an open question post-Purdue. Chapter 15 of the US Bankruptcy Code permits foreign debtors undertaking a restructuring process under foreign law to apply for recognition of the foreign insolvency proceedings and enforcement of the orders made in the foreign proceedings in the US.

The US Bankruptcy Court for the District of Delaware Decision in: In re Crédito Real SAB de CV, SOFOM, E.N.R.

Crédito Real, one of Mexico’s largest alternative lenders, filed for creditor protection under Mexican law in October of 2023, and subsequently presented a restructuring plan in May 2024. The Plan was approved by the requisite majority of unsecured creditors and by the Mexican court, all in accordance with applicable local law.

The Plan included third-party releases that released claims against several third parties such as Crédito Real’s directors, officers and shareholders. Because the Plan would be binding on all creditors, including those that did not vote in favour of it, the releases provided in the Plan were nonconsensual.

Crédito Real brought a petition in the US Bankruptcy Court for the District of Delaware on February 7, 2025, seeking orders under Chapter 15 of the Bankruptcy Code recognizing Crédito Real’s Mexican insolvency proceedings as foreign main proceedings and enforcing the Mexican Court’s order approving the Plan, including the nonconsensual third-party releases, in the US.

In granting the requested relief, the Delaware Court determined that the prohibition on nonconsensual third-party releases under Chapter 11 established in Purdue did not extend to Chapter 15 cases because sections 1123(b) and 1141(d) of the Bankruptcy Code, which form the basis for the Purdue decision, do not apply under Chapter 15.

Further, although section 1506 of Chapter 15 gives a US court discretion to refuse to recognize and enforce a foreign order if doing so would be “manifestly contrary to public policy”, in Crédito Real, the Delaware Court confirmed that “relief that is granted in a foreign proceeding does not have to be identical to relief that might be available in a US proceeding” as a pre-condition to such relief being recognized and enforced under Chapter 15.

The Delaware Court noted that to reach the threshold of “manifestly contrary to public policy” the procedural fairness of the foreign proceeding has to be in doubt, or that recognition would “impinge severely on a US constitutional or statutory right.”

The Delaware Court also observed that section 524(g) of the US Bankruptcy Code permits nonconsensual third-party releases in the context of toxic tort asbestos cases and reasoned, on this basis, that Crédito Real’s Plan was not “manifestly contrary to public policy” because such relief would be available in other contexts and could be made available more broadly by an act of Congress.

This decision has been appealed to the Delaware District Court, so there may be more to come as the case continues to develop.

A Developing trend, or More of the Same?

In Nexii, Bennett Jones LLP acted as Canadian counsel to the Court-appointed Monitor for a Vancouver-based sustainable construction company in what is considered to be the first post-Purdue case where a foreign order approving nonconsensual third-party releases (in this case, granted by the Supreme Court of British Columbia) was recognized and enforced in the US under Chapter 15 by the Bankruptcy Court for the District of Delaware.

Nexii was followed by Mega NewCo, where the US Bankruptcy Court for the Southern District of New York enforced an English financial restructuring scheme under England’s Company Act 2006 (the Scheme). In order to affect the restructuring of US$351 million of debt issued to a Mexican-based automobile financing enterprise under New York law-governed notes, the debt was assigned to a newly formed subsidiary organized under English law, with the original borrower providing a guarantee in exchange for broad court-ordered releases. The subsidiary was created with the express stated purpose of accessing the relief available under English law, the restructuring was implemented through the Scheme under English law, and an application was made to the US Bankruptcy Court under Chapter 15 for recognition of the English proceedings and enforcement of the English court orders approving the Scheme, which included nonconsensual third-party releases, in the US. 

In the result, the Bankruptcy Court issued an order under Chapter 15 recognizing and enforcing the Scheme in the US. 

While nonconsensual releases have been recognized under Chapter 15 prior to Purdue, Nexii, Mega NewCo and Crédito Real may represent a burgeoning trend in cross-border restructurings that provide a pathway to achieve certain relief under a Chapter 15 restructuring in certain circumstances that may be prohibited under Chapter 11. With the pending appeal in Crédito Real, appellate guidance on this issue may be forthcoming; restructuring advisors on both sides of the border are keenly following these developments.

Conclusions and Canadian Impacts

Because such releases often form an integral component of a comprehensive restructuring plan, businesses with a nexus to Canada and their advisors should consider whether a restructuring process under Canada’s flexible insolvency or corporate law regimes, in combination with a Chapter 15 filing, would enhance the likelihood of a successful outcome. 

In addition to third-party releases, Canadian courts have, in appropriate circumstances, approved other novel restructuring transactions and heads of relief that are not always contemplated under the US Bankruptcy Code.

If you require assistance in respect of issues relating to insolvency matters, including cross-border insolvency issues and the availability of relief including nonconsensual third-party releases under Canadian insolvency law, please contact a member of the Bennett Jones Restructuring and Insolvency group.

¹In Re Crédito Real SAB de CV, SOFOM, E.N.R., US Bankruptcy Court for the District of Delaware Case 25-10208-TMH, Opinion of Judge Thomas M. Horan dated April 1st, 2025 [Crédito Real].

²Nexii Building Solutions Inc., et al, US Bankruptcy Court for the District of Delaware Case 24-10026 JKS, Order of Judge Stickles dated July 22nd, 2024 [Nexii]; Mega NewCo Limited, No. 24-12031 (MEW), 2025 WL 601463 (Bankr. S.D.N.Y. Feb. 24 2025) [Mega NewCo].

³Harrington v Purdue Pharma L.P., 603 U.S. 204 (2024) [Purdue].

⁴See for example: In re Smallhold, Inc., US Bankruptcy Court for the District of Delaware Case No. 24-10267 CTG, Memorandum Opinion regarding Opt-Out Third Party Releases of Judge Craig T. Goldblatt dated September 25, 2024.

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