Recent Chapter 15 Cases Show Potential for Non-Consensual Third-Party Releases Based Upon Foreign (Non-U.S.) Proceedings

The Bottom Line

Last year, the U.S. Supreme Court barred the use of nonconsensual third-party releases in Chapter 11 cases, holding that the Bankruptcy Code did not provide a basis to nonconsensually release claims against third parties (with a few limited exceptions) pursuant to Chapter 11 plans. Harrington v. Purdue Pharma L.P., 603 U.S. 204 (2024). However, the Supreme Court’s ruling did not address whether nonconsensual third-party releases obtained in foreign insolvency proceedings could be enforced in the United States through Chapter 15 bankruptcy cases — which are separate proceedings from those under Chapter 11. Chapter 15, which implements the UNCITRAL Model Law on Cross-Border Insolvency, allows for a case that grants certain ancillary relief in the United States in aid of a non-U.S. insolvency proceeding. That issue has now been raised in at least four different Chapter 15 cases based upon applicable non-U.S. insolvency laws, with varying results. In Crédito Real, the Delaware Bankruptcy Court enforced a nonconsensual third-party release under Mexican law over a creditor’s objection, expressly holding that Purdue and its limitations did not apply in Chapter 15 cases. The Southern District of New York Bankruptcy Court reached a similar conclusion in Odebrecht Engenharia e Construção S.A., writing an opinion on this issue specifically in response to the U.S. Trustee making the same objection in multiple Chapter 15 cases. In the remaining two cases (Mega NewCo and Yuzhou) — each filed in the Bankruptcy Court for the Southern District of New York — compromises were reached to enforce nonconsensual third-party releases either with a limited scope or solely outside of the United States. Each of these cases provides a valuable lesson for bankruptcy practitioners looking to better understand how non-U.S. proceedings can be used to obtain and implement nonconsensual third-party releases in the United States in a post-Purdue world.

CRÉDITO REAL

Presently the most on-point reported decision enforcing nonconsensual third-party releases is Crédito Real, which involved one of Mexico’s largest nonbank financial lending institutions; when it became distressed, its stakeholders agreed on a proposed global restructuring that would be consummated through a Mexican prepackaged proceeding followed by a Chapter 15 filing. See In re Crédito Real, S.A.B. de C.V., SOFOM, E.N.R., Case No. 25-10208-TMH (Bankr. D. Del. Apr. 1, 2025), Dkt. No. 65 (C.R. Recognition Opinion) at 5. The Mexican prepackaged proceeding was filed on Oct. 6, 2023, and the Mexican restructuring (concurso) plan was approved by the Mexican court on Aug. 15, 2024. C.R. Recognition Opinion at 5 – 7. Critically, the Mexican plan contained nonconsensual third-party releases and exculpations for the benefit of Crédito Real’s current and former directors and officers, shareholders, creditors and an indenture trustee, among other parties. C.R. Recognition Opinion at 8 – 9.

On Feb. 7, 2025, the Foreign Representative of Crédito Real initiated a Chapter 15 proceeding in the Bankruptcy Court for the District of Delaware (Delaware Bankruptcy Court), asking for recognition of the Mexican plan. Of relevance, the Foreign Representative asked the Delaware Bankruptcy Court to enforce the exculpatory and release provisions in the Mexican plan that “[shielded] certain parties who played roles in the negotiation and implementation of the Chapter 15 Debtor’s restructuring process, including the Ad Hoc Group, the Mexican Liquidator, the Chapter 15 Debtor’s former directors and officers, the Indenture Trustee, and certain related parties” (collectively, the Released Parties). C.R. Recognition Opinion at 8. The Released Parties were exculpated for “any actions or inactions taken during the restructuring process prior to the creditors’ formal acceptance of the plan.” Id.

The U.S. International Development Finance Corp. (DFC) objected, contending that the Mexican plan could not be recognized in its current form because the nonconsensual third-party releases were not specifically authorized by the provisions of the Bankruptcy Code applicable to Chapter 15 cases, nor by the catchall provisions applicable to those proceedings — Sections 1507 and 1521. First, DFC argued that Section 1521(a) of the Bankruptcy Code does not include third-party releases as relief available to a foreign debtor, as Section 1521(a)’s reference to “any appropriate relief” that may be granted only refers to relief available under the Bankruptcy Code. Second, DFC asserted that Sections 1521 and 1507’s abilities to grant “additional relief” to a foreign representative also do not allow for third-party releases. DFC argued that Purdue provided “a framework for thinking about statutory interpretation,” and that as a result, the Delaware Bankruptcy Court should read Sections 1521(a) and 1507 in the same way that the Supreme Court interpreted Chapter 11’s catchall provision of the Bankruptcy Code (Section 1123(b)(6)) in the Purdue decision, and should conclude that the catchall provisions “are limiting provisions that provide no authority for enforcements of the [releases].” C.R. Recognition Opinion at 11. Finally, DFC contended that enforcing the nonconsensual third-party releases contained in the plan would be manifestly contrary to the public policy of the United States under Section 1506 of the Bankruptcy Code. Id.

The Delaware Bankruptcy Court disagreed, overruling DFC’s objections. At the outset of its analysis, the court noted that the inclusion of the policy statement in Section 1501 “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.” C.R. Recognition Opinion at 13. In interpreting Section 1521(a), the court determined the forms of relief listed therein are nonexclusive. In contrast, Section 1123(b), which governs Chapter 11 proceedings, states that a court may approve any “other” Chapter 11 plan provision that is not “inconsistent with the applicable provisions of this title.” 11 U.S.C. § 1123(b)(6). Section 1521(a) does not contain such limiting language, and permits courts to grant “any additional relief that may be available to a trustee.” 11 U.S.C. § 1521(a)(7). The court also pointed to the fact that Section 1521(a) contains a list of prohibited relief, and third-party releases are not included in that list. C.R. Recognition Opinion at 24 – 29.

As to Section 1507 of the Bankruptcy Code, the Delaware Bankruptcy Court noted that its use of “additional assistance” suggests that “even if a court cannot grant relief under section 1521(a)(7), it may grant relief under section 1507.” C.R. Recognition Opinion at 27. Section 1507 also sets forth factors for courts to consider when determining to provide additional assistance. According to the court, those factors “focus on whether relief would be ‘consistent with the principles of comity.’” Id. at 28 (citing 11 U.S.C. § 1507(b)). Notably, third-party releases are customary in Mexican settlement agreements, are permitted under Mexican insolvency law, and here, were approved by the Mexican court. C.R. Recognition Opinion at 9. The Delaware Bankruptcy Court concluded that “[b]ecause comity is central to chapter 15, the relief granted in the foreign court does not have to be available in U.S. courts under chapter 11.” C.R. Recognition Opinion at 28.

Finally, the Delaware Bankruptcy Court looked to whether Section 1506 of the Bankruptcy Code, which provides that the court may “refus[e] to take an action governed by [chapter 15] if the action would be manifestly contrary to the public policy of the United States,” counseled against granting recognition of the Mexican plan. The court noted that Section 1506’s public policy exception applies “where the procedural fairness of the foreign proceeding is in doubt or cannot be cured by the adoption of additional protections or where recognition would impinge severely a U.S. constitutional or statutory right.” C.R. Recognition Opinion at 33 (quotations and citations omitted). The court found that DFC played an active role in the Mexican proceeding, and never objected to the plan there. DFC’s only argument was that nonconsensual third-party releases were manifestly contrary to U.S. public policy because the Purdue decision may prohibit such releases under Chapter 11. The court disagreed, instead concluding that nonconsensual third-party releases are “far from being manifestly contrary to the public policy of the United States,” because they are expressly permitted under Section 524(g) of the Bankruptcy Code in the context of asbestos cases. C.R. Recognition Opinion at 37. The court further explained that “[t]o be manifestly contrary to U.S. public policy, the contested relief must impinge on some constitutional or statutory right; if a nonconsensual third-party release impinged on some constitutional right, the Supreme Court would not have said that Congress could provide for it.” Id.

In conclusion, the Delaware Bankruptcy Court determined that Sections 1521(a)(7) and 1507(a) enable a U.S. bankruptcy court to enforce a foreign order for nonconsensual third-party releases, and even if those catchall sections were ambiguous, the “legislative history and canons of statutory construction confirm this interpretation and corresponding Congressional intent.” C.R. Recognition Opinion, at 29 (citation omitted).

DFC appealed the court’s ruling on March 25, 2025. As of the date of this article, that appeal remains pending.

ODEBRECHT ENGENHARIA E CONSTRUÇÃO S.A.

The ruling in Crédito Real was followed shortly thereafter by a ruling in the Bankruptcy Court for the Southern District of New York (SDNY Bankruptcy Court), where Judge Martin Glenn undertook a similar analysis in deciding to enforce nonconsensual third-party releases in In re Odebrecht Engenharia e Construção S.A., Case No. 25-10482-MG (Bankr. S.D.N.Y. 2025), Dkt. No. 23 (OEC Decision). Odebrecht Engenharia e Construção and its affiliates (the OEC Group) are one of the largest private business groups in Brazil, and provide engineering, construction and infrastructure-related services. OEC Decision at 2. In June 2024, the OEC Group initiated a Brazilian recuperação judicial to undertake a comprehensive financial restructuring in Brazil. Id. at 3. The Brazilian restructuring plan was approved on March 7, 2025, and the OEC Group’s foreign representative initiated a Chapter 15 proceeding on March 14, 2025, seeking enforcement of the Brazilian plan. Id. at 3 – 4.

The Brazilian plan itself did not contain a nonconsensual third-party release, but the U.S. Trustee argued that the proposed order granting recognition contained an impermissible limitation on liability for third parties and injunction provisions that were akin to a nonconsensual third-party release. Id. at 4 – 6. The foreign representative disagreed with that interpretation but ultimately argued that even if the proposed language did create a nonconsensual third-party release, Purdue does not apply to Chapter 15 cases and thus the order should be granted. Id. at 6 – 7.

First, the court concluded that the injunctive and exculpatory language in the proposed order was intended to bar creditors bound by the Brazilian plan “from suing in the U.S. to recover on claims that are barred” under the Brazilian plan, and that granting this relief was in furtherance of comity because it “clos[ed] the door to potential workarounds to the Plan.” Id. at 16. Second, the court held that the scope of the proposed exculpation was consistent with the scope of exculpations regularly granted in Chapter 11 cases, and was limited to parties actively involved in the structuring and in taking actions that were central to the Brazilian plan, and thus the exculpation was permissible. Id. at 17 – 19.

Finally, the court disagreed with the U.S. Trustee that the proposed recognition order clearly granted nonconsensual third-party releases, but held that even if the order did grant nonconsensual third-party releases, the court had “the power to issue such an order in a Chapter 15 case, pursuant to at least section 1521 …. ” Id. at 19 – 20. In so holding, Glenn relied heavily on the recent decision in Crédito Real to reach the same conclusion as Judge Thomas M. Horan — that Section 1521 allows for nonconsensual third-party releases in Chapter 15 cases, and that such releases are not manifestly contrary to public policy. Id at 20 – 23. The court also conducted an extensive review of pre-Purdue case law to conclude that it is “clear that a party can lose rights in an ancillary proceeding which it otherwise would have had in a plenary case under the Bankruptcy Code.” Id. at 24 – 25.

Interestingly, part of the court’s ruling hinged on the conclusion that there was no substantive 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.” Id. at 20 – 21. This begs the question of whether other Chapter 15 debtors could try to use Chapter 15 to enforce a nonconsensual third-party release that is not in the underlying non-U.S. restructuring plan (but that is consistent with applicable non-U.S. law) over the objection of impacted creditors.

MEGA NEWCO

In Mega NewCo, Judge Michael E. Wiles of the SDNY Bankruptcy Court ultimately approved limited nonconsensual third-party releases, but expressed concerns about debtors “surgically” using foreign restructurings to obtain relief not otherwise available in the United States, and bringing that relief to the United States for enforcement through a Chapter 15 proceeding. In re Mega NewCo Limited, Case No. 24-12031-MEW (Bankr. S.D.N.Y. 2024), Dkt. No. 27 (Mega NewCo Recognition Decision).

Mega NewCo’s parent company, Operadora de Servicios Mega, S.A. De C.V. (the Parent, and together with its subsidiaries, the Group) is a Mexican regulated financial services provider, specializing in leasing, lending, auto loans and factoring. Mega NewCo Recognition Decision, at 2. The Group’s business, operations and headquarters are concentrated in Mexico. Id. In 2020, the Parent issued approximately 8.250% senior notes due 2025, which were governed by New York law (the U.S. Notes). As of Oct. 31, 2024, the aggregate principal amount outstanding under the U.S. Notes was approximately US$350.8 million. In re Mega NewCo Limited, Dkt. 2 (Mega NewCo Recognition Motion), ¶ 9.

Various macro- and microeconomic headwinds culminated in the Group’s financial distress and the Parent’s ultimate default under the U.S. Notes in 2023. Mega NewCo Recognition Motion ¶¶ 14 – 18. As part of a broader restructuring of the Group’s existing debt structure, the Parent negotiated a restructuring plan solely for the U.S. Notes with the holders thereof (the Scheme). Under the terms of the indenture, a restructuring of the U.S. Notes required 100% affirmative consent from the noteholders if implemented outside of bankruptcy. Mega NewCo Recognition Decision at 2 – 3. In contrast, a U.K. scheme required only 75% consent — a much more achievable number — and would permit the restructuring of a single debt instrument (in contrast with U.S. Chapter 11 proceedings, which would require a more holistic approach to restructuring the Parent’s capital structure). Id.

To facilitate implementation of the Scheme, Mega Newco was created and incorporated as a direct subsidiary of the Parent under the laws of England and Wales (with a listed registered office in London, England) to bridge the jurisdictional gap to the United Kingdom. Mega NewCo Recognition Decision at 3 – 4. Mega NewCo was then added as an obligor with respect to the U.S. Notes, and commenced an English Scheme Proceeding on Nov. 14, 2024. Id. The Scheme, which contained nonconsensual third-party releases of the non-debtor Parent, advisers, directors and officers, and affiliates (among others), was approved by the requisite number of noteholders, and later that same month, on Nov. 25, Mega Newco, through its foreign representative, commenced the Chapter 15 proceeding and sought recognition of the Scheme proceeding. Id.

The recognition order originally proposed by Mega NewCo included full recognition of the Scheme’s broader nonconsensual third-party releases, but was modified following discussions with the U.S. Trustee to limit the scope of the third-party releases to be “solely with respect to any liability arising directly or indirectly out of or in relation to” the U.S. Notes. In re Mega NewCo Limited, Dkt. No. 20, at 232 – 23; Mega NewCo Recognition Decision at 4. No party objected to the third-party releases or to recognition generally.

In reviewing the relief sought, Wiles expressed substantial concerns with the restructuring transactions undertaken to address the U.S. notes through the Chapter 15 proceeding, and in particular whether the Scheme proceeding constituted a “foreign main proceeding” or a “foreign nonmain proceeding” given the Group’s lack of any real connection to the United Kingdom. Mega NewCo Recognition Decision at 4 – 9. Whether a pending foreign insolvency proceeding qualifies as a “foreign main” or “foreign nonmain” proceeding that is eligible for recognition under Chapter 15 depends on whether the foreign debtor’s “center of main interests” (COMI) lie in that non-U.S. jurisdiction, or whether the foreign debtor has an “establishment” in that non-U.S. jurisdiction. Noting that the SDNY Bankruptcy Court “cannot help but see significant risks in the structure that has been used here,” id. at 6, Wiles expressed concern that this could be a predicate to other debtors using “COMI manipulation” “as a way of frustrating and thwarting the legitimate expectations of creditors.” Id. at 6 – 7. Despite Wiles’ reservations, the SDNY Bankruptcy Court ultimately concluded that Mega NewCo’s COMI was in the United Kingdom, and granted recognition in large part because of the level of creditor support for the proceedings (and given that no party had objected), remarking that “[i]ronically, the only thing that would thwart creditor expectations in the case before me would be if I were to decline to enforce the English Court Order.” Id. at 8 – 9.

While the more limited nonconsensual third-party releases were ultimately approved in Mega NewCo, the case counsels caution given the SDNY Bankruptcy Court’s hesitation on the formation of a new entity to facilitate the non-U.S. foreign proceeding and, in turn, seeks the underlying nonconsensual release relief outside of the United States for recognition under Chapter 15.

YUZHOU

A third Chapter 15 proceeding was poised to address nonconsensual third-party releases post-Purdue over the objection of the U.S. Trustee, but it appears that the parties have resolved the issue consensually. See In re Yuzhou Group Holdings Company Limited, Case No. 24-11441-LGB (Bankr. S.D.N.Y. 2024).

On Aug. 22, 2024, Yuzhou’s foreign representative commenced a Chapter 15 proceeding on, seeking recognition of an insolvency proceeding pending in Hong Kong. In re Yuzhou Group Holdings Company Limited, Dkt. No. 2, Verified Petition under Chapter 15 (Aug. 22, 2024). Yuzhou and its affiliates are leading property developers in Hong Kong and the People’s Republic of China, and have been negatively impacted by recent developments in China’s real estate market. Id. at 2 – 3. As a result, Yuzhou commenced the Hong Kong proceeding to restructure its funded indebtedness, and the restructuring scheme was approved on Sept. 24, 2024. In re Yuzhou Group Holdings Company Limited, Dkt. No. 20, Supp. Decl. in Support (Apr. 9, 2025), at 4 – 5. The restructuring scheme included a nonconsensual third-party release of Yuzhou’s directors and officers, advisers, and various transaction parties. In re Yuzhou Group Holdings Company Limited, Dkt. No. 10, Limited Objection of U.S. Trustee to the Verified Petition under Chapter 15 for Recognition (UST Objection) (Sept. 25, 2024), at 4 – 5.

On Sept. 25, 2024, the U.S. Trustee objected to the scheme’s nonconsensual third-party releases, making many of the same arguments asserted by the U.S. Trustee in the Crédito Real Chapter 15 case (as discussed above): (i) that the “additional assistance” or “appropriate relief” permitted by Section 1521(a) does not extend to third-party releases; (ii) that there was insufficient evidence in the record to show that the principles of comity were satisfied under Section 1507(b); and (iii) that the releases were manifestly contrary to public policy following the Supreme Court’s ruling in Purdue. See UST Objection.

After the U.S. Trustee’s objection was filed, the hearing on the foreign representative’s request for recognition was delayed for several months. See In re Yuzhou Group Holdings Company Limited, Dkt. Nos. 11, 17. On April 9, 2025, the foreign representative filed a revised proposed recognition order, which “resolves” the objection of the U.S. Trustee. In re Yuzhou Group Holdings Company Limited, Dkt. No. 21, Notice of Filing of Revised Proposed Order (Apr. 9, 2025), at 1. The revised recognition order includes a new paragraph clarifying that the proposed recognition order “does not enforce, act as an injunction enforcing, or grant relief or assistance with respect to” the nonconsensual third-party releases. Id., Ex. A, Revised Proposed Order ¶ 9. As a result, the foreign representative no longer appears to be seeking enforcement of the nonconsensual third-party releases in the United States. The recognition hearing has been set for April 30, 2025. In re Yuzhou Group Holdings Company Limited, Dkt. No. 22, Notice of Hearing (Apr. 9, 2025). The resolution does not provide any specific insights on how the court would have ruled if the matter remained contested.

At an uncontested recognition hearing held on April 30, 2025, Judge Beckerman granted both recognition of Yuzhou’s Hong Kong proceeding as a foreign main proceeding and its Hong Kong scheme of arrangement. At that hearing, counsel to the foreign representative informed the Court that the revisions related to the third-party releases sought to reserve all rights in the event a creditor later pursues a claim that was released under the Hong Kong scheme of arrangement, and alleges that release was nonconsensual and should not be enforced in the United States. The Court thereafter entered the revised recognition order. Id., Dkt. No. 26, Order Granting Verified Petition Under Chapter 15 For Recognition of Foreign Main Proceeding and Related Relief (May 2, 2025).

Why These Cases Are Interesting

In the wake of the Supreme Court’s Purdue decision, these four cases reflect three varied outcomes to addressing nonconsensual third-party releases through non-U.S. restructurings: (i) obtaining nonconsensual third-party releases over objection in a Chapter 15 context (Crédito Real and Odebrecht Engenharia e Construção S.A.); (ii) limiting the scope of the nonconsensual third-party releases to the specific liability being restructured — there, debt governed by U.S. law (Mega NewCo) with the absence of any objections but using a newly formed entity to effectuate that relief; and (iii) a consensual resolution that declined to seek enforcement of the nonconsensual third-party releases in the United States (Yuzhou) despite obtaining judicial sanction of those releases in the foreign proceeding.

The next frontier for nonconsensual third-party releases may be a combination of Mega NewCo’s “surgical” restructuring transactions and the nonconsensual third-party releases reflected in Crédito Real’s Mexican plan or Odebrecht Engenharia e Construção S.A.’s recognition order. There will likely be an increasing number of Chapter 15 debtors taking advantage of the approaches identified in Crédito Real, Odebrecht Engenharia e Construção S.A. and Mega NewCo to accomplish outcomes not otherwise available in the United States but permissible under non-U.S. insolvency laws, including nonconsensual third-party releases.