The Court’s Ruling:
The catch-all provision Section 1123(b)(6) of the federal Bankruptcy Code (11 U.S.C. § 1123(b)(6)), which allows Bankruptcy Courts to approve “any other appropriate provision” in a corporate reorganization plan for a bankrupt debtor, does not authorize the approval of a plan, and a concomitant judgment, that will relieve non-bankrupt debtors of their potential liabilities to nonconsenting creditors. Here, the Court disallowed a provision in Purdue Pharma’s bankruptcy reorganization plan that would have relieved Purdue Pharma’s insiders, who had not declared bankruptcy, of all potential liability to the victims of that corporation’s Oxycontin scandal, without those victims’ consent. By a 5-4 decision, the Court held that such plan provisions were simply too extreme to be permitted by the ambiguous language of Section 1123(b)(6). Justices Kavanaugh, Sotomayor, and Kagan, and Chief Justice Roberts, dissented from the Court’s ruling.
My Opinion:
The Court did not pay sufficient attention to the word “appropriate” in Section 1123(b)(6). A careful analysis of what relief to parties in bankruptcy cases under the Bankruptcy Code would be “appropriate” under Section 1123(b)(6), might have justified the proposed settlement plan under that section, since most of the active parties in that case, including most, but not all of the injured victims of the Oxycontin scandal, favored the proposed plan. The objection to Purdue Pharma’s plan, however, by the governmental “Trustee” appointed to oversee Purdue Pharma’s bankruptcy case, should have been regarded as presumptively valid in any event, practically foreclosing any court finding that the contested plan provision was somehow “appropriate.”
Dan D. Rhea
RECENT RULINGS 