In our increasingly globalized world, cross-border insolvency proceedings brought under chapter 15 (herein "Chapter 15") of title 11 of the United States Code (the "Bankruptcy Code") are on the rise - with over 100 additional filings in 2020 alone. Third-party releases are provisions in bankruptcy plans intended to release non-debtors (including shareholders, directors, officers, and affiliates) from claims creditors hold against other members of their class. A third party release can "act as a complete release, waiver, and discharge of that party ... arising out of or in connection with the debtor and its plan of reorganization." While the Bankruptcy Code does not expressly define or authorize third-party releases from foreign bankruptcies, Chapter 15 "is the exclusive door to ancillary assistance to foreign proceedings" seeking recognition and enforcement of foreign orders in the U.S.
As U.S. bankruptcy courts shape the parameters for enforcing foreign third-party releases with every Chapter 15 petition, one question arises: under what circumstances are these releases enforceable under Chapter 15? This memorandum examines this question in three parts. Part I analyzes the legal requirements to recognize, and criteria to enforce, foreign bankruptcy court orders under Chapter 15 and its subsumed principles of comity. Part II examines how bankruptcy courts construe these criteria through key cases involving the enforcement or refusal of foreign non-debtor third-party releases. Finally, Part III examines the public policy exception limiting the court’s level of discretion in these matters under section 1506 of the Bankruptcy Code.