The House Judiciary yesterday favorably reported (23-17) H.R. 4777, the "Nondebtor Release Prohibition Act of 2021," introduced by House Judiciary Chair Jerrold Nadler (D-N.Y.), out of committee. The legislation now goes to the full House of Representatives, where the timeline for consideration by the full chamber is unclear. Nadler, in a press release, said that the legislation would limit tactics known as nondebtor stays and injunctions, which allow a nondebtor to avail itself of the "benefits of the bankruptcy process without assuming the obligations and procedural safeguards associated with bankruptcy." Under the bill, nonconsensual preliminary stays and injunctions could only last up to 90 days. "Finally, the legislation limits the use of so-called 'divisional mergers' — which allow a corporation to shield its assets from its victims and other creditors." Republicans on the House Judiciary Committee objected the proposal, according to WSJ Pro Bankruptcy, saying during the mark-up hearing yesterday that the bill might impair companies’ ability to restructure significant liabilities in chapter 11 or restrict judges’ flexibility in ultimately deciding if a troubled company can be revived and jobs preserved. The Senate Judiciary has not considered the Senate companion bill (S. 2497 introduced by Sen. Elizabeth Warren (D-Mass.)), and the proposal still faces challenges given the slim majorities in the House and Senate.
Click here to read the full text of the bill.
Click here to read Nadler's press release.
