USA – DELAWARE Trends and Developments Contributed by: Rachel Jaffe Mauceri, Evan M. Lazerowitz, Margaret A. Goggins and Davis Lee Wright, Robinson & Cole LLP
any of them”, subject to the right of any creditor to opt out of the release ( In re Tonawanda Coke Corp. , 662 B.R. 220 (Bankr. W.D.N.Y. 2024)). The UST objected, arguing that only an opt-in was appropriate. Chief Judge Carl L. Bucki agreed and denied con - firmation, taking the view that third-party releases (not just non-consensual third-party releases) are not authorised by the Bankruptcy Code. Rather, as “an ancillary offer that becomes a contract upon accept - ance and consent”, consensual releases are gov - erned by state law, and, under New York law, require a signed writing (ibid at 223). Contract law aside, the court held that “[c]onsent and failure to object are not synonymous” (ibid). The Tonawanda plan became effective in February 2025 following the confirmation of an amended plan that removed third-party releases. Third Circuit Bankruptcy courts in both the Districts of Delaware and New Jersey have been active, with several recent cases considering both opt-in and opt-out releases. As a general matter, opt-in releases remain gener - ally non-controversial, and recent cases adopting opt-in releases include In re Basic Fun, Inc. , Case No 24-11432-CTG (D. Del. 2024) (both voting and non- voting creditor opt-in) and In re Rite Aid Corp. , Case No 23-18993-MBK (D.N.J. 2023) (opt-in process for voting creditors and for creditors deemed to reject). Opt-out plans are still far from uniform, however, and courts within the same district have shown different levels of comfort with respect to deemed releases. Third Circuit – In re Smallhold In the Delaware bankruptcy case In re Smallhold , Judge Craig T. Goldblatt examined a proposed opt- out that featured a check-the-box for voting credi - tors, with deemed releases for unimpaired non-voting creditors. The UST objected to both. The plan did not include a deemed opt-out for impaired creditors that did not return their ballots. The court held that voting creditors who returned their ballots and failed to tick the opt-out box could be presumed to consent, because “the affirmative act of voting, coupled with clear and conspicuous dis -
closure and instructions about the consequences of the vote and a simple mechanism for opting out, is a sufficient expression of consent to bind the credi - tor to the release under ordinary contract principles” ( In re Smallhold, Inc. , 665 B.R. 704, 710 (Bankr. D. Del. 2024)). While sympathetic to the policy reasons that might favour it, the court found that non-voting creditors could not be deemed to opt in under Purdue without some affirmative expression of the creditor’s consent (ibid at 711). Third Circuit – deemed releases in other bankruptcy cases Several other bankruptcy courts within the District of Delaware have overruled UST objections and approved a variety of opt-out provisions, including: • In re True Value Co. , Case No 24-12337-KBO (approving release for creditors voting in favour and failing to affirmatively opt out); • In re Wheel Pros LLC , Case No 24-11939-JTD (approving deemed release for those voting in favour and those failing to return ballots, and release for parties voting against plan that failed to check the box); and • In re Fisker , Case No 24-11390-TMH (approving opt-out provision, but excluding parties deemed to reject, as parties cannot be assumed to consent). Opt-out provisions have also seen success in bank - ruptcy courts within the District of New Jersey. See, for example: • In re BowFlex Inc. , Case No 24-12364-ABA (approving third-party releases of (i) those voting to accept plan, and (ii) those deemed to accept or reject, and those abstaining or voting to reject, and not affirmatively opting out); • In re Invitae Corp. , Case No 24-11362-MBK (approving release for all voting and non-voting creditors that did not affirmatively opt out (other than those not receiving an opt-out form), plus a supplemental post-confirmation opt-out period for certain classes of claims); and • In re Sam Ash Music Corp. , Case No 24-14727- SLM (approving release for all parties deemed to accept the plan, and all parties voting in favour or against or abstaining from voting on the plan, and
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