The SEC filed with the U.S. Bankruptcy Court an objection to Real Industry’s Plan of Reorganization.
The objection asserts, “The SEC objects to confirmation of the Plan because the Plan contains improper non-debtor third party releases (the ‘Third Party Releases’) and also purports to release derivative claims that could otherwise inure to the benefit of shareholders in this case (the ‘Derivative Claims Releases’). 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 Chapter 11 discharge provisions. Such releases have special significance for public investors because they may 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.”
In addition, “While such releases may be imposed nonconsensually in exceptional circumstances, those circumstances are not present here including, most notably, the lack of any consideration being contributed by the parties being released in exchange for the Third Party Releases. Instead, the Debtor apparently claims that the relevant Third Party Releases here are consensual. But in our view, silence cannot constitute ‘consent’ to third party releases. Finally, to the extent certain provisions purport to release direct claims between non-debtor parties, which have no impact on the assets or administration of the Debtors’ estates, the Court may lack subject matter jurisdiction to approve them.”
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