Aligning himself with an April 1 decision by Bankruptcy Judge Thomas M. Horan of Delaware, New York’s Bankruptcy Judge Martin Glenn approved additional, “appropriate” relief in a chapter 15 case with expansive nondebtor releases and exculpations. The releases and exculpations were broader than those granted by the foreign debtor’s home court in Brazil.

Judge Glenn said that Harrington v. Purdue Pharma L.P., 602 U.S. 204 (2024), “did not say anything about limitations on the power of courts to act as ancillaries to foreign proceedings under chapter 15.” To read ABI’s report on Purdue, click here.

Nondebtor Releases and Exculpations

The Brazilian debtors were construction companies with more than 17,000 employees and operations “primarily” in Brazil, Judge Glenn said in his April 21 opinion. The debtors began restructuring proceedings in Brazil in June 2024. With all voting creditor classes in support, the debtors obtained the Brazilian court’s approval of a restructuring plan in March 2025.

The Brazilian plan discharged all claims against the debtors “and their officers, directors, agents, employees and representatives.” One week after approval of the plan in Brazil, the debtors filed a chapter 15 petition in New York seeking foreign main recognition and approval of discretionary relief under Sections 1507 and 1521.

As part of requested discretionary relief, the debtors wanted “their officers, directors, agents, employees and representatives” to have no liability for “any action or inaction taken” in connection with the Brazilian case or the chapter 15 case, except for fraud, gross negligence or willful misconduct. The released parties included nondebtors like the noteholders’ indenture trustee, clearing agents and the custodian of the U.S.-issued notes.

As part of requested discretionary relief, the debtors also wanted the U.S. court to issue a permanent injunction barring “all persons” from taking action in the territorial U.S. that would interfere with the implementation of the Brazilian plan.

There were no objections to the grant of foreign main recognition. Only the U.S. Trustee objected to the two proposed grants of discretionary relief. Judge Glenn described the U.S. Trustee as contending that the “limitation on liability is inappropriate because it is a ‘veiled exculpation clause[]’ [that] goes beyond the relief granted by the Brazilian court, [with] no statutory basis for granting the limitation.”

The U.S. Trustee also argued that the debtors wanted the U.S. court to grant “impermissible nonconsensual third-party releases.” According to the U.S. Trustee, both features were not “appropriate relief” permissible under Section 1521(a).

Existing Caselaw

Addressing the objections, Judge Glenn cited authorities for the proposition that the discretion to grant “appropriate relief” under Section 1521(a) is “exceedingly broad.” The limitation, he said, is in Section 1506, which permits the court to refuse to take an “action [that] would be manifestly contrary to the public policy of the United States.”

Looking to chapter 11 caselaw for guidance, Judge Glenn said it is well settled that exculpations may protect estate fiduciaries and that those who are not estate fiduciaries may be exculpated if they were actively involved in all aspects of the chapter 11 case and made “significant contributions.”

In chapter 15 cases, Judge Glenn said, “Courts in this district have long enforced foreign restructuring plans in Chapter 15 cases which include nonconsensual third-party releases, most doing so pursuant to sections 1507 and 1521 of the Code.” He added, “Exculpations have been granted by courts in this district in Chapter 15 cases, including protection of non-fiduciaries.”

With regard to the law since Purdue was handed down, Judge Glenn said,

To date, only one written decision has been issued on the question [of] whether Purdue applies in chapter 15 proceedings: In re Crédito Real, S.A.B. de C.V., SOFOM, E.N.R., No. 25-10208 (TMH), 2025 WL 977967, at *1 (Bankr. D. Del. Apr. 1, 2025).

To read ABI’s report on Crédito Real, click here.

Broad Enforcement Powers

The U.S. Trustee contended that both provisions sought by the debtors provide “relief beyond the scope provided by the Brazilian Confirmation Order and the [Brazilian] Plan,” Judge Glenn said. The judge responded by saying that U.S. courts in chapter 15 cases “are not limited in the discretionary relief they grant by that relief afforded by the foreign court or the plan of reorganization.”

“The relief provided in the Recognition Order,” Judge Glenn said, “puts an enforcement mechanism in the U.S. order that prevents disgruntled creditors who are bound by the [Brazilian] Plan from suing in the U.S. to recover on claims that are barred by the [Brazilian] Plan.” He said that courts “in this district are not bound” by contrary authority from the Fifth Circuit in In re Vitro S.A.B. de C.V., 701 F.3d 1031 (5th Cir. 2012).

Judge Glenn found that the “exculpation provision in the [recognition] Order is, therefore, integral to the recognition and enforcement of the [Brazilian] Plan” and that “the exculpation provision in the [recognition] Order complies with the requirements courts place on exculpation provisions in Chapter 11 cases.”

Nondebtor Releases

The debtors conceded that neither the Brazilian plan nor the Brazilian court order approving the plan contained nondebtor releases. To the U.S. Trustee’s argument that the additional relief included impermissible nondebtor releases, Judge Glenn said that “Judge Horan’s recent opinion in Crédito Real provides a lucid explanation [for] why courts can enforce nonconsensual third-party releases found in foreign plans of reorganization.”

Judge Glenn pointed out the difference between Section 1123(b)(6), applicable in Purdue, and Section 1521(a), which governs in chapter 15 cases. He said that Section 1123(b)(6) “enumerates boundaries,” whereas Section 1506 has only one boundary by saying that the court may grant no relief “manifestly contrary” to U.S. public policy. He said that Purdue “cannot be read to hold that nonconsensual third-party releases are ‘manifestly contrary to’ U.S. public policy such that they would be barred by section 1506.”  

“Following the logic of Crédito Real and Purdue,” Judge Glenn held, “the text of section 1521 permits the grant of a nonconsensual third-party release in support of a foreign debtor’s plan of reorganization.”

Judge Glenn ended his opinion by stating the holding more broadly:

To summarize, (1) the plain text of Chapter 15, (2) caselaw under its predecessor (section 304), and (3) pre-Purdue caselaw in this district all support a finding that courts can, pursuant to section 1521 of the Code, issue orders pursuant to their discretionary powers under section 1521 which contain nonconsensual third-party releases, whether or not those releases originate from a foreign court.

Judge Glenn granted foreign main recognition with an order containing releases and exculpations for nondebtors.

Observations

Among the courts of appeals, the Fifth Circuit is the most adamant in limiting the breadth of releases and exculpations in favor of nondebtors. See Highland Capital Management Fund Advisors LP v. Highland Capital Management LP (In re Highland Capital Management LP), 132 F.4th 353 (5th Cir. March 18, 2025). To read ABI’s report, click here.

ould a bankruptcy court in the Fifth Circuit reach the same result as Judges Glenn and Horan? Could a U.S. subsidiary of a foreign corporation obtain nondebtor releases and exculpations through the parent’s bankruptcy abroad?