USA – DELAWARE Trends and Developments Contributed by: Rachel Jaffe Mauceri, Evan M. Lazerowitz, Margaret A. Goggins and Davis Lee Wright, Robinson & Cole LLP
2005 decision in In re Metromedia Fiber Network, Inc. (416 F.3d 136, 142 (2d Cir. 2005)) as support that the Second Circuit has long approved consensual third- party releases ( In re Spirit Airlines, Inc. , 668 B.R. at 689, 703) (“In addressing this question, this Court does not write on a blank slate but instead looks to the existing case law in the District and Circuit.”). In so doing, Judge Lane examined several factors raised in prior cases, finding that: • the releases were “clearly worded and prominently presented” in the plan material, and thus were “reasonably calculated to apprise interested parties of their rights”; • the releases were “consistently part of the pro - posed [p]lan here since the very beginning of the bankruptcy”; and • given the substantial recoveries, the cases were not a situation where creditors were not incentiv - ised to pay attention to the case (ibid at 7070–8). The court further found the mechanism appropriate despite differing circumstances of the applicable credi - tors. For voting creditors, the court found that the mes - sage to creditors “appears to have been received”, with 190 opt-out ballots returned, and for parties to the RSA, the court found it “exceedingly easy to conclude that a party who signs a contract such as the RSA here has manifested its consent” (ibid at 79). For non-voting par - ties, the court found the opt-out procedure appropriate under the circumstances, including the well-publicised nature of the cases and the absence of a committee objection (ibid at 708–10). GOL – Brazilian airline GOL Linhas Aéreas Inteligentes SA and certain of its affiliates (together, GOL) sought Chapter 11 protection in January 2024. The GOL plan included an opt-out that required both creditors in voting classes and unimpaired creditors (who were deemed to accept the plan) to affirmatively opt out by checking the box and returning their ballots (or appli - cable notices for non-voting creditors). Creditors who were deemed to reject the plan were not bound by the third-party releases. Judge Martin Glenn confirmed the largely consensual GOL plan on 21 May 2025, and wrote separately to address the UST’s objection to the proposed opt-out release. Given the absence of federal bankruptcy law on the point, state law must
apply, the UST argued, and, under state law, “opt- outs are impermissible and do not manifest consent” ( In re GOL Linhas Aéreas Inteligentes S.A. , 2025 WL 1466055, *16 (Bankr. S.D.N.Y. May 22, 2025)). Judge Glenn overruled the UST’s objection, holding with respect to the federal law question that statu - tory, constitutional and precedential considerations all favoured a finding that federal law applied (and disagreeing with courts that have held to the contrary, including in In re Tonawanda Coke Corp. and In re Smallhold, Inc. , each discussed below) (ibid, *19–22). Judge Glenn also held that the court could issue a final order releasing claims with the consent of credi - tors to the bankruptcy court’s jurisdiction over non- core claims, which could be implied absent express objection (ibid, *22–24), and that the Court had juris - diction to grant the releases (ibid, *24). Turning to the opt-out provisions, Judge Glenn, echo - ing the ruling in Spirit , found that: • the number of creditors both voting and opting out of the releases indicated adequate service of process; • the releases were prominently displayed on the ballots and plan materials and no unfavourable changes had been made since the initial version of the plan was filed; and • non-voting impaired creditors were not bound by the releases, and thus there was no concern that creditors with “financial ‘skin in the game’ [would] be surprised” (ibid, *25). The GOL Court also overruled the US Trustee’s objec - tion to the plan injunction (ibid). GOL exited bank - ruptcy in June 2025. The UST appealed the Court’s confirmation order, which remains pending. Second Circuit – the Western District of New York rejects opt-outs In In re Tonawanda Coke Corp. , the proposed plan of liquidation included a general release of “the Debtor, its interest holders, the members of the Committee and each of their respective directors, officers, share - holders, members, partners, agents, employees, rep - resentatives, attorneys and other professionals, sub - sidiaries and affiliates, and any successor in interest in
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