Purdue Doesn’t Stop Chapter 15 Recognition And Enforcement Of Third-Party Releases

The U.S. District Court for the District of Delaware has issued a significant ruling in the cross‑border insolvency practice that reaffirms U.S. recognition of foreign restructuring plans containing third-party releases.

Crédito Real S.A.B. DE C.V., SOFOM, E.N.R. (“Crédito Real”) was one of Mexico’s largest non-banking financial lending institutions. In 2021, Crédito Real experienced a liquidity crisis and commenced negotiations with its creditors. The negotiations, which were long and drawn out, ultimately resulted in a restructuring support agreement (the “RSA”). The RSA provided for, among other things, a prepackaged restructuring proceeding in Mexico under Mexican law and recognition of that proceeding and the approved restructuring plan in the U.S. under Chapter 15 of the Bankruptcy Code. Under the Mexican proceeding, Crédito Real obtained court approval of its restructuring plan (the “Plan”). The Plan, which was supported by the creditors, contained releases of third-party claims and causes of action as permitted under Mexican law (the “Release”).

After approval of the Plan, Crédito Real, through its foreign representative, filed a petition seeking recognition of the Mexican proceeding under Chapter 15. The United States Development Finance Corporation (“DFC”), a U.S. government agency, objected to the entry of an order enforcing the Plan in the U.S. because the Release violated U.S. public policy following the Purdue decision.

The Delaware Bankruptcy Court, after briefing and oral arguments, overruled the DFC objection. That court held that Chapter 15’s broad grant of authority permits enforcement of the Plan, including the Release. According to the Bankruptcy Court, Purdue’s holding was inapplicable because of the limited nature of that decision to the Chapter 11 process, which has no bearing on Chapter 15’s separate framework for “international comity and cooperation with foreign courts in foreign insolvency proceedings.” Further, the Bankruptcy Court found that the Release was not “manifestly contrary” to U.S. public policy.

DFC appealed the decision to the Delaware District Court. That court held that, notwithstanding Purdue, Chapter 15 permits recognition and enforcement of nonconsensual third‑party releases approved in a foreign insolvency proceeding. In affirming the Bankruptcy Court’s decision, the District Court analyzed the purpose of Chapter 15. Specifically, the court found that Chapter 15 was enacted to, among other things (i) promote cooperation between U.S. and foreign courts, (ii) facilitate cross‑border insolvency administration, and (iii) give effect to foreign restructuring judgments unless doing so would violate fundamental U.S. public policy. Both the Bankruptcy Court and the District Court noted that Chapter 11 and Chapter 15 “are very different animals.” Chapter 15 is a framework for recognition and promoting comity, while Chapter 11 is a process to develop and obtain approval of a restructuring plan.

In upholding the Bankruptcy Court’s decision, the District Court focused on the underlying principles of Chapter 15, including international comity. This principle encourages U.S. courts to respect foreign insolvency judgments unless doing so would violate fundamental domestic policy. Both the Bankruptcy Court and the District Court, in analyzing the issue of recognition and enforcement, found that the Mexican proceeding was procedurally sound, creditor‑approved, and court‑supervised. In Chapter15, these factors weigh heavily in favor of recognition.

Further, the District Court analyzed the issue of whether the Release violates fundamental U.S. domestic policy. The District Court pointed out that U.S. law does not categorically prohibit third-party releases, citing to the fact that the Bankruptcy Code contains provisions for the approval of such releases, including, for example, asbestos channeling injunctions. Moreover, the District Court stated that the public policy exception relied upon by DFC in its objection “applies only when actions offend the most fundamental policies of the United States and is invoked only under exceptional circumstances concerning matters of fundamental importance for the [United States].”¹ The District Court concluded that the enforcement of the Release through Chapter 15 is not such a fundamental policy of the U.S. Indeed, the District Court noted that Purdue was not decided on policy grounds but was reached only through statutory interpretation. Thus, the District Court held that the Bankruptcy Court appropriately granted the Chapter 15 recognition request and order enforcing the Plan, which contained the Release.

This decision from the Delaware District Court adds strong and further support to the proposition that Chapter 15 can be used to obtain and enforce third-party releases that are otherwise not obtainable in Chapter 11 post-Purdue. This decision is part of a trend where U.S. courts recognize third-party releases obtained in foreign restructuring proceedings. Thus, it appears that there is an emerging judicial consensus that Chapter 15 remains a viable pathway for cross‑border restructurings that rely on third‑party releases. As a result, companies facing insolvency may increasingly consider foreign restructuring venues where third‑party releases are available and seek recognition under Chapter 15.

Recently, an English restructuring plan was used to restructure US headquartered Fossil Group Inc, allowing the US company to preserve its listed status, preserve equity, deal with hold out creditors as well as enable third party releases.  The English sanctioned plan was recognised under Chapter 15 with little difficult.  New Fortress Energy looks to follow suit, having announced the launch of the English restructuring process.  The convening hearing (at which the English court will consider whether to allow the company to convening meetings of creditors/shareholders) is listed to be heard on 14 May 2026.  If the plan receives support in England and is sanctioned, given the recent trend in recognising foreign restructuring proceedings, the plan proposed by New Fortress Energy may well follow suit and receive Chapter 15 recognition if the restructuring is supported by creditors and the English court.

Footnote

1. Internal quotations omitted.

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