August 2025 | Schwartz Bankruptcy Insights
The Supreme Court’s landmark 2024 decision in Harrington v. Purdue Pharma L.P. reshaped the legal terrain surrounding non-consensual third-party releases in Chapter 11 plans. But a critical question remains: does this prohibition apply beyond plan confirmations, particularly in asset sales and Rule 9019 settlements?
The answer, emerging from recent case law, appears to be no—at least not yet.
A Refresher on Purdue Pharma
In Purdue Pharma, the Court held that the Bankruptcy Code does not authorize non-consensual third-party releases in Chapter 11 plans, absent statutory authority like Section 524(g) (used in asbestos cases). This decision overturned a widely used mechanism that shielded non-debtors (such as company executives or family members) from liability in exchange for financial contributions to the reorganization.
Post-Purdue: Are Sales and Settlements Exempt?
Recent rulings suggest that the Purdue prohibition is limited in scope. Courts in the Second and Third Circuits have allowed third-party releases when they are:
- Part of a Section 363 asset sale, or
- Incorporated into a Rule 9019 settlement, especially where they are critical to the transaction and receive court approval.
For example, the July 2025 case In re Rockville Centre Insurance Group upheld a third-party injunction tied to a 9019 insurance settlement, reasoning that Purdue applied to plan-confirmed releases, not compromises approved independently of a plan.
Similarly, in insurance sales or policy buyouts, some courts have continued to authorize releases protecting insurers and related parties, especially when those protections are deemed essential to preserving estate value.
Key Takeaways for Practitioners
- Purdue Pharma has not eliminated all third-party releases—only those embedded in Chapter 11 plans without creditor consent.
- Careful drafting and procedural compliance with Sections 363 and 9019 can still provide avenues for protective injunctions.
- Expect increased scrutiny: Courts now demand more detailed findings and greater transparency about the necessity and fairness of such releases.
What to Watch For
- Ongoing litigation may further test the outer bounds of the Purdue
- The U.S. Trustee Program continues to oppose non-consensual releases aggressively.
- Congressional action is possible to clarify the scope of permissible third-party protections.
Conclusion
In a post-Purdue world, non-plan releases in bankruptcy sales and settlements remain a viable but increasingly scrutinized tool. Bankruptcy professionals should structure deals carefully, anticipate objections, and be prepared to justify the essential nature of any proposed release or injunction.
By Deanna Rahmani
The author interacted with the following artificial intelligence tools to create or assist in the creation of content included in this blog: ChatGPT
