The long way around Purdue: Delaware and New York courts rule nonconsensual third-party releases permissible under chapter 15

BY CRAIG MARTIN, ERIK STIER AND ROXANNE EASTES

The US Bankruptcy Courts for the District of Delaware and the Southern District of New York recently issued decisions that (1) highlight the difference between relief available under chapter 11 and chapter 15 and (2) provide guidance to distressed companies considering reliance on nonconsensual third-party releases, either in a foreign plan or an order of a US bankruptcy court implementing the plan within the US.

Delaware court’s Crédito Real decision

On April 1, 2025, the Honorable Judge Thomas M. Horan of the US Bankruptcy Court for the District of Delaware issued an opinion in In re Crédito Real, S.A.B. de C.V., SOFOM, E.N.R, No. 25-10208 (TMH), 2025 Bankr. LEXIS 751, at *1 (Bankr. D. Del. Apr. 1, 2025) [D.I.65].

The opinion held that nonconsensual third-party releases in a foreign debtor’s plan of reorganization should be recognized and enforced within the territorial jurisdiction of the US, under the express provisions of chapter 15 and its general principles of comity.

In so ruling, Judge Horan distinguished the standards applicable to recognition in chapter 15 from the standards applicable to plan confirmation in chapter 11, which the US Supreme Court addressed in Harrington v. Purdue Pharma, LP, 603 U.S. 204 (2024).

While Purdue held that nonconsensual third-party releases were impermissible in a chapter 11 plan based on a textual reading of the Bankruptcy Code, Judge Horan found them enforceable through chapter 15 because “Chapter 11 and Chapter 15 are very different animals.” In re Crédito Real, S.A.B. de C.V., SOFOM, E.N.R., No. 25-10208 (TMH), Mar. 25, 2025 Hr’g Tr. at 61:12–13.

The Delaware court also rejected the argument that nonconsensual third-party releases are manifestly contrary to US public policy because, as demonstrated by the Bankruptcy Code’s provisions that govern nonconsensual third-party releases in asbestos channeling injunctions, nonconsensual third-party releases are permissible in certain instances.

Crédito Real’s concurso proceeding

Crédito Real was one of the largest nonbank lending institutions in Mexico and filed for creditor protection under Mexican law in October 2023. In May 2024, the company filed a concurso plan that was approved first by the requisite majority of unsecured creditors and subsequently by the Mexican court.

On February 7, 2025, Crédito Real petitioned the Delaware bankruptcy court for recognition of the Mexican concurso proceedings as foreign main proceedings under chapter 15, seeking enforcement of the concurso plan within the US – including its nonconsensual third-party releases.

DFC’s Purdue objection

The US International Development Finance Corporation (DFC) objected to enforcement of the nonconsensual third-party releases under the concurso plan. DFC argued that Purdue limited the relief available in chapter 15.

Specifically, DFC asserted that enforcement of the concurso plan was beyond the scope of “any appropriate relief” available in chapter 15 because nonconsensual third-party releases are not permitted under the Bankruptcy Code.

Further, DFC argued that Crédito Real had failed to demonstrate “extraordinary circumstances” that would permit the bankruptcy court to grant relief otherwise unavailable under US law. DFC additionally argued that, following Purdue, nonconsensual third-party releases are manifestly contrary to US public policy.

Delaware court enforces third-party releases in concurso plan

In a March 11, 2025 bench ruling, Judge Horan framed his analysis within the policy statement in Section 1501 of the Bankruptcy Code, which “highlights that the Court should be guided by the main policy goals of chapter 15—cooperation and comity with foreign courts and deference to those courts within the confines established by chapter 15.”

Judge Horan also emphasized chapter 15’s focus on comity and concluded that: “U.S. bankruptcy courts should aim to maximize assistance to the foreign court conducting the foreign main proceeding.”

The Delaware court rejected DFC’s arguments that chapter 15 relief was limited by Purdue, reasoning that Purdue focused on the contents of a chapter 11 plan and did not address chapter 15. The plain language of chapter 15, however, enumerates relief that a bankruptcy court may grant at the request of a foreign representative, listing specific prohibited relief that does not include nonconsensual third-party releases.

In other words, the Delaware court reasoned that by expressly identifying what relief was prohibited in chapter 15, US Congress allowed that other relief not articulated would be permissible. Judge Horan found that since chapter 15 has a “much different purpose and context” than the rest of the Bankruptcy Code, “relief that is appropriate subject to limitations in chapter 15 must be different than relief that is not inconsistent with the applicable provisions of the Bankruptcy Code.”

The Delaware court further explained that “U.S. courts do not have to reject relief solely because it would be unavailable in the United States.” Instead, Judge Horan noted that the prohibitive provision in chapter 15 is limited to those rare situations in which the relief is manifestly contrary to the public policy of the US.

The Delaware court found that the releases were not manifestly contrary to the public policy of the US, noting that the “narrowly construed” public policy exception is restricted to “the most fundamental policies of the United States,” and should only be used “to deny enforcing foreign relief sparingly.” The Delaware court held that the public policy exception only applies when the “the procedural fairness of the foreign proceeding is in doubt or cannot be cured by the adoption of additional protections.”

The Delaware court noted that the “DFC did not object to the fairness of the proceedings, nor did it identify a constitutional or statutory right on which the Concurso Plan impinges,” but that the Mexican bankruptcy nonetheless “comported with U.S. standards of procedural fairness.” Id. Judge Horan concluded that “[t]he simple fact that a U.S. court could not grant such releases in a typical chapter 11 plan does not make them manifestly contrary to U.S. public policy so as to require this Court to prohibit enforcement of the Release[s].”

Accordingly, the Delaware court held that “chapter 15 authorizes this Court to enforce nonconsensual third-party releases ordered by foreign courts” based on the plain language of chapter 15, the fairness of the Mexican bankruptcy proceedings, and the fact that the concurso plan was not manifestly contrary to US public policy.

On March 25, 2025, DFC appealed the bankruptcy court’s holding to the US District Court for the District of Delaware. The appeal is significant because until the recent Odebrecht case discussed below, when the issue of nonconsensual third-party releases had arisen in chapter 15 cases, parties have resolved the issue, largely by agreeing with the Office of the US Trustee (the UST) not to enforce the releases in the territorial jurisdiction of the US. See eg, In re Mega NewCo Limited, Case No. 24-12031 (MEW) (Bankr. S.D.N.Y. Feb. 24, 2025) [D.I. 27].

The Crédito Real decision will therefore be the first contested application related to nonconsensual third-party releases in a chapter 15 after Purdue and will remain a focal point as the case progresses through the appellate courts.

Odebrecht Engenharia e Construção S.A decision

Just weeks after Judge Horan’s decision in Crédito Real, on April 21, 2025, the Honorable Chief Judge Martin Glenn of the US Bankruptcy Court for the Southern District of New York issued a decision in In re Odebrecht Engenharia e Construção S.A, No. 25-10482 (MG), 2025 Bankr. LEXIS 990, at *1 (Bankr. S.D.N.Y. Apr. 21, 2025) [D.I. 23], holding that US bankruptcy courts have the power to issue orders containing provisions for nonconsensual third-party releases, even if those releases are not contained in a foreign debtor’s plan.

In so doing, he relied upon and adopted the Delaware court’s decision in Crédito Real, making two of the most significant bankruptcy courts in the US in agreement on the issue.

OEC’s recuperação judicial proceedings

Odebrecht Engenharia e Construção S.A (OEC) is one of the largest construction companies in the world, with operational and economic activities primarily concentrated in Brazil.

In June 2024, OEC commenced Brazilian recuperação judicial proceedings to implement a comprehensive restructuring of liabilities through an agreed plan of reorganization (the RJ Plan), which the Brazilian court approved on March 7, 2025.

OEC commenced chapter 15 proceedings in the Southern District of New York on March 14, 2025, seeking recognition and enforcement of the RJ Plan. Although all parties agreed at the recognition hearing that the RJ Plan did not contain third-party releases, the order of the New York court recognizing the RJ Plan arguably created nonconsensual third-party releases.

UST’s objection

The UST objected to recognition and enforcement of the RJ Plan arguing that releases contained in the order amount to “an expansive third-party release” impermissible after Purdue. Like DFC, the UST asserted that the release did not fall within the category of “any appropriate relief” under chapter 15 because Purdue prohibited third-party releases without consent.

New York court approves nonconsensual third-party releases in chapter 15

Citing Judge Horan’s decision in Crédito Real, Chief Judge Glenn overruled the UST’s objection, holding the RJ Plan enforceable and the terms of the order regarding third-party releases appropriate.

In his decision, Chief Judge Glenn noted that there is no meaningful difference between enforcing, via order, a foreign plan with a third-party release provision, and “issuing an order enforcing a foreign plan, which order contains a third-party release which itself is not in the foreign plan.”

The New York court further highlighted that “[t]here are limitations to courts’ discretionary powers under chapter 15, but they are not obligated to grant only that relief which is similar or parallel to that granted abroad or specified in the plan at issue.”

Chief Judge Glenn further considered whether nonconsensual third-party releases could be approved under chapter 15. Aligned with Judge Horan’s Crédito Real decision, Chief Judge Glenn held that such releases were not prohibited under chapter 15 and that the relief available under chapter 15 is not constrained by Purdue or otherwise limited by the relief available under chapter 11.

Conclusion

The Crédito Real and Odebrecht decisions highlight key distinctions between the relief available under chapter 11 and chapter 15 and have meaningful implications for companies considering the venue of insolvency proceedings following the Supreme Court’s decision in Purdue.

Additionally, taken together, the decisions indicate that while a foreign court may approve plans that contain provisions not necessarily available in a chapter 11 plan, they also suggest that US bankruptcy courts – to ensure that a foreign plan is not disrupted through litigation strategies in the US – may implement those plans by including in those orders provisions that are not in the foreign plan.

While these issues may continue to draw objections and the outcomes will be fact-dependent, these two decisions resolve open issues in chapter 15 and will be important to its continued development.

Craig Martin is DLA Piper’s Global Co-Chair, Restructuring Managing Partner. Erik Stier and Roxanne Eastesis are associates at DLA Piper.

This overview was originally published by DLA Piper. Republished with permission.

 

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