Multiple parties–including U.S. Bank National Association, the SEC and Escambia Trade Center–filed with the U.S. Bankruptcy Court separate objections to Cumulus Media’s First Amended Plan.
The SEC asserts, “As a general matter, non-debtor third party releases contravene Section 524(e) of the Bankruptcy Code, which provides that only debts of the debtor are affected by the Chapter 11 discharge provisions. Such releases have special significance for public investors because they enable non-debtors to benefit from a debtor’s bankruptcy by obtaining their own releases with respect to past misconduct, including violations of the federal securities laws or breaches of fiduciary duty under state law. While such releases may be allowed in exceptional circumstances, those circumstances are not present here.”
In addition, “In the Second Circuit, non-consensual releases are only permitted in ‘rare cases’ where the injunction is important to the debtor’s reorganization. Otherwise, third party releases of non-debtors may be allowed if they are ‘consensual.’ Courts in this district have stated that inaction cannot be considered consent. Therefore, under the facts of this case, the releases are not ‘consensual,’ nor do they meet the high standard for allowable non-consensual releases in the Second Circuit. The releases should be deleted from the Plan, or, alternatively, the Plan should be amended to state that the releases will not bind: (i) shareholders who are deemed to reject the Plan; and (ii) unsecured creditors who fail to return a ballot.”
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