This article was first published in the July 2025 issue of Butterworths Journal of International Banking and Financial Law.
The UK and the US implemented cross-border restructuring procedures to facilitate, among other things, international comity and the effective restructuring and reorganisation of distressed entities with international operations. A key component of any such international restructuring is recognition of the actions undertaken in the applicable jurisdiction (eg the UK) in other relevant jurisdictions (eg the US). Nonconsensual third-party releases are an important tool in a practitioners’ toolbox to facilitate an effective restructuring. Recently, case law in the US both:
(i) invalidated nonconsensual releases in the context of Ch 11 proceedings in the US; and
(ii) upheld the continued legality of nonconsensual third-party releases in cross-border matters under Ch 15 of the US Bankruptcy Code (which chapter governs US recognition of non-US restructuring proceedings).
In light of those developments, this In Practice article provides an overview of fundamental concepts underlying nonconsensual third-party releases and explores their continued utility as an available mechanism to facilitate UK-US restructurings.
English Law Schemes of Arrangement and Restructuring Plans
Third-party releases of non-proprietary rights are common in English law schemes of arrangement and restructuring plans. Releases of non-proprietary rights extend to third party liabilities, for example, guarantees given in respect of debt that is being forgiven in the scheme (In Re T&N Ltd (No 4) [2005] EWHC 2870 (Ch)). By way of example, the Avanti Scheme granted releases to guarantors of the 2023 notes, prohibiting creditors from pursuing recovery against Avanti or its subsidiary guarantors. Such releases are often ancillary to the scheme of arrangement or a restructuring plan but are required to ensure its effectiveness (In re Lehman Brothers International (Europe) [2009] EWCA Civ 1161). Absent such releases, third parties would remain liable in relation to the debt compromised under the scheme which might give rise to a subrogation claim against the scheme/plan company. Such a “ricochet” claim might derail the restructuring because the relevant claims will not have been fully compromised.
It is not a strict rule that a third party release is always required; the UK court will assess the degree of connection (or, in fact, the lack of any connection) between the scheme/plan company and its creditors and the subject matter of the scheme/plan in order to determine if the UK court should exercise its discretion to approve a scheme/plan and allow a more tangential third-party release.
It is well established in the UK that a scheme of arrangement takes effect by operation of law and does not affect the rights of third parties as such. Consequently, releases need to be part of the express terms of the scheme or the plan to be effective as the English court will not “read into” a scheme/plan third-party releases that have not been expressly provided in the scheme/plan and disclosed to creditors in the explanatory statement (Oceanfill Ltd v Nuffield Health Wellbeing Ltd and Cannons Group Ltd [2022] EWHC 2178 (Ch)).
A third-party release can never be implied under English law. For example, in the absence of express third-party releases, a third- party/non-group guarantor would remain liable for sums due under a lease notwithstanding that the primary lease obligation had been compromised under the plan.
An English court will not approve a scheme or plan unless the court is satisfied that the scheme or plan is likely to have substantial effect. If the scheme/plan relates to liabilities governed by non- English law, an expert evidence is required that the effect of the scheme or plan will likely be enforceable in the relevant non-English jurisdiction.
US Supreme Court and Subsequent US Case Law on Nonconsensual Third-Party Releases
As noted above, an English court’s approval of a nonconsensual release in connection with a cross-border proceeding will require consideration by the English court as to whether the non-English jurisdiction will honour the nonconsensual third-party releases.
Last year the US Supreme Court held in Harrington v Purdue Pharma L.P., 603 U.S. 204 (2024) (Purdue) that the US Bankruptcy Code does not allow for nonconsensual third-party releases in Ch 11 bankruptcy cases (the decision did not address “consensual” releases that rely upon creditors being able to “opt-in” or “opt-out” of the applicable releases). The US Supreme Court ruled, among other things, that nonconsensual third-party releases are impermissible:
- falling outside the scope of s 1123(b) of the US Bankruptcy Code, which limits the types of provisions a bankruptcy plan may include; and
- contravening s 1141(d), which provides a “discharge” from liability only to a “debtor”.
Subsequent to Purdue, several US bankruptcy cases have addressed the continued viability of nonconsensual third-party releases post-Purdue and found that, in the context of Ch 15, they remain permissible.
Specifically, the US Bankruptcy Court for the District of Delaware, in In re Credito Real, S.A.B. de C.V. SOFOM, E.N.R. (Credito Real), held that a Ch 15 court may recognise, and give effect in the US, to nonconsensual third-party releases contained in a non-US court’s order. More recently, in Odebrecht Engenharia e Construcao S.A., Case No. 25-10482 (MG) (Odebrecht), the US Bankruptcy Court for the Southern District of New York followed Credito Real in finding that ss 1521 and 1507 of the Bankruptcy Code provided discretionary authority to issue “any appropriate relief ” to assist in the enforcement of underlying non-US proceedings, provided such relief is consistent with principles of international comity.
Importantly, the Odebrecht decision goes further than Credito Real, and holds that a US bankruptcy court may issue an order containing nonconsensual third-party releases whether or not those releases originate from a non-US court. In other words, the decision implicates that the US court, in the context of Ch 15 recognition, is not limited to the actions taken by the applicable non-US court, but can craft additional relief as may be needed to effectuate the plan or relief entered by the non-US court – which may include nonconsensual third party releases. Nonconsensual releases may be obtained under Ch 15 even if such releases would not be available to a debtor under Ch 11.
Conclusion
The UK restructuring tools combined with Ch 15 in the US continue to provide a viable process for practitioners to structure effective cross-border restructurings. Chapter 15 provides flexibility for courts to fashion bespoke relief, in the name of international comity, that may differentiate from relief otherwise available solely under Ch 11 in the US and provides the framework to facilitate creative and value-maximising restructuring transactions.