Key takeaways

• This alert discusses three recent appellate rulings. Two clarified the law relating to out-of-court exchange offers and structured dismissals of chapter 11 cases. The third opens a concerning new front of uncertainty with respect to nonconsensual third-party releases in chapter 11 plans.
• In Jevic, the Supreme Court confirmed that there are limits to the creativity parties may use in finding exits from chapter 11 when a traditional chapter 11 plan is not feasible. The Supreme Court set limits on a recent trend toward restructuring settlements that take the form of “structured dismissals,” holding that courts cannot approve distributions that ignore bankruptcy priority rules without the consent of adversely affected creditor classes.
• In Marblegate, the Second Circuit refused to reconsider its January 2017 decision that took a narrow reading of Trust Indenture Act Section 316(b), likely representing the final reversal of what had been a market-rattling lower court decision finding that minority non-consenting bondholders had the power to block certain distressed exchange offers even if they did not change principal, interest or maturity of the bonds.
• In Millennium, the Delaware District Court has potentially made it more difficult for directors, officers, employees and sponsors of chapter 11 debtors to obtain a valuable element of protection in chapter 11 cases, by questioning the constitutional authority of bankruptcy courts to grant nonconsensual third-party releases in chapter 11 plans.