A federal judge in Virginia rejected a debt-repayment plan for the former owner of Ann Taylor, Lane Bryant and other retail brands, voiding the broad legal protections bestowed on its former top executives and adding to the growing backlash against such liability releases, WSJ Pro Bankruptcy reported. Judge David Novak of the U.S. District Court in Richmond, Va., ruled on an appeal Thursday that a bankruptcy court lacked constitutional authority to approve legal releases in the chapter 11 plan of Ascena Retail Group Inc. that would have extinguished shareholders’ legal claims over actions management took before the company went bankrupt in 2020. The breadth of legal protection for the former Ascena executives “can only be described as shocking,” Judge Novak said. The proposed liability release, he said, would have extinguished not just a pending shareholder lawsuit but “every conceivable claim — both federal and state claims for an unspecified time period stretching back to time immemorial.” The ruling marks the second time in two months that a federal judge has rejected the use of legal releases that shut down creditors’ claims against third parties to a bankruptcy case. Third-party releases have become increasingly common in chapter 11 but are facing greater scrutiny beyond the nation’s bankruptcy courts. In December, a federal judge in Manhattan voided similar releases covering the wealthy owners of OxyContin maker Purdue Pharma LP, using reasoning similar to Judge Novak’s. Purdue has filed an appeal seeking to reinstate its owners’ releases, an integral part of its planned emergence from chapter 11.
