Overlooking Tort Claimants' Best Interests: Non-Debtor Releases in Asbestos Bankruptcies

Abstract:     
The asbestos crisis has spawned the development of extraordinary new remedies. One of the most dramatic and controversial is known as a “non-debtor release,” a bankruptcy order extinguishing claims against a party who has not itself filed for bankruptcy. Also known as a “third-party release,” this form of relief first found acceptance in early asbestos insolvencies. Since that time, Congress has passed a statute – § 524(g) of the Bankruptcy Code – that expressly authorizes non-debtor releases in asbestos reorganizations. Powerful remedies are subject to abuse, and third-party releases are no exception. In this article, I argue that bankruptcy courts and litigants have overlooked critical limits on non-debtor releases – limits contained in both § 524(g) and other provisions of the Code. The most important restriction is this: Under the best interest of creditors test set forth in § 1129(a)(7) of the Code, it is permissible to extinguish the liabilities of a third party over the objection of claimants only when the plan of reorganization promises payment in full on the released claims.

Number of Pages in PDF File: 77

Keywords: bankruptcy asbestos non-debtor release

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