Third-party Releases After Purdue

What this topic is

A third-party release is a plan provision extinguishing claims held by creditors against non-debtors — a sponsor, a lender, an officer, a shareholder — usually in exchange for a contribution to the plan. For decades some courts approved them without the affected creditors' consent, treating them as necessary to fund a settlement. In Harrington v. Purdue Pharma the Supreme Court held in June 2024 that the Bankruptcy Code does not authorise a plan to discharge claims against a non-debtor without the consent of the affected claimants.

Why it matters

Third-party releases were the mechanism through which mass-tort and sponsor-contribution plans were built. Take them away and the incentive for a non-debtor to write a cheque disappears, because the cheque no longer buys peace. Purdue removed the nonconsensual version and expressly declined to define consent — so the entire architecture of these plans now rests on ballot mechanics, opt-in versus opt-out, and what silence means. Courts have divided on exactly that.

Who should learn it

Restructuring lawyers and advisers building or objecting to plans, mass-tort claimants and their counsel, sponsors and directors evaluating what a contribution buys, insurers, and distressed investors pricing plans that depend on non-debtor contributions.

What you will understand

• What Purdue actually held, and the four things it expressly did not decide
• Why §524(g) asbestos channelling injunctions were unaffected
• The opt-in versus opt-out consent debate and how courts have split since
• What still works: debtor releases, exculpation, insurance channelling, and consensual structures

Prerequisites

• Preference Payments and Clawbacks
• Directors Duties Near Insolvency

Common misconception

"Purdue banned third-party releases." It banned nonconsensual ones. Consensual third-party releases remain available and are used in almost every large plan. The Court explicitly said it was not passing on consensual releases, on what qualifies as consent, on exculpation clauses, or on §524(g) asbestos trusts. The real post-Purdue question is not whether a release is possible but whether a creditor who received a ballot, did not return it, and never appeared in the case can be treated as having agreed to give up a claim against someone who did not file for bankruptcy.