Bankruptcy Injunctions and Complex Litigation: A Critical Reappraisal of Non-Debtor Releases in Chapter 11 Reorganizations

Abstract

Bankruptcy courts are increasingly faced with resolving complex litigation in the context of Chapter 11 proceedings. Meanwhile, the judicial practice of discharging creditor actions against non-debtors in these proceedings is growing. This article asserts that such non-debtor releases are a wholly inappropriate use of bankruptcy courts’ injunctive powers.

This article begins with an overview of the nature and types of bankruptcy injunctions. It then carefully explores the various bankruptcy policy rationales that have been offered to justify non-debtor releases and critiques each in turn. The article then searches for a legitimate jurisdictional foundation for non-debtor releases and finds none. The conclusion of this article is that the use of non-debtor releases in bankruptcy lacks theoretical merit and is outside the scope of judicial authority without express legislative approval.

Keywords: non-debtor releases, bankruptcy injunctions, complex litigation, non-debtor stays, injunctions in aid of jurisdiction, necessary to reorganization