## Facts

- SunEdison, Inc. and affiliated debtors filed chapter 11 cases and proposed a second amended joint plan of reorganization.
- The plan contained a broad third-party release benefiting numerous non-debtors, including various affiliates and current or former officers and directors.
- The plan defined “Releasing Parties” to include claimholders entitled to vote who did not vote to reject the plan (“Non-Voting Releasors”), deeming their silence as consent to the releases.
- No creditor objected to the third-party release; the bankruptcy court raised concerns sua sponte.
- The court confirmed the plan by order entered July 28, 2017, but reserved decision on whether the third-party release could be enforced against Non-Voting Releasors.
- After confirmation, the debtors filed supplemental briefing supporting enforcement of the release against nonvoting creditors.
- The court issued a post-confirmation decision addressing implied consent, subject-matter jurisdiction over released claims, and whether any nonconsensual releases met governing Second Circuit standards.

## Issues

1. Whether creditors who were entitled to vote but did not vote to reject the plan impliedly consented to third-party releases by failing to return a ballot.
2. Whether the bankruptcy court had subject-matter jurisdiction to approve plan releases extinguishing creditors’ direct claims against non-debtor third parties to the scope stated in the plan.
3. Whether, assuming jurisdiction, the nonconsensual third-party releases were permissible under the Second Circuit’s standards for non-debtor releases.

## Decision

- The court held the debtors did not prove that Non-Voting Releasors impliedly consented to the third-party releases.
- The court held it lacked jurisdiction to release certain third-party claims to the full breadth contemplated by the plan, particularly where creditors held direct claims against non-debtors that did not have a sufficient effect on the estate.
- The court held that, even aside from consent and jurisdiction defects, the debtors failed to show that imposing the releases on nonconsenting parties was warranted under controlling Second Circuit authority.
- The court therefore concluded the third-party release was not enforceable against nonvoting creditors.

## Legal Principles

- A plan provision deeming a creditor’s failure to vote as consent is generally insufficient, without more, to establish consent to release the creditor’s direct claims against non-debtors; affirmative consent is required or must be clearly established.
- Bankruptcy courts must assess jurisdiction over the underlying third-party dispute; inclusion of a release in a confirmed plan does not itself supply jurisdiction to extinguish third-party claims.
- “Related to” jurisdiction depends on whether the third-party dispute could have a conceivable effect on the bankruptcy estate; jurisdiction is more likely for derivative claims affecting the estate than for creditors’ direct claims against non-debtors.
- Under Second Circuit law, non-debtor releases are permitted only in rare cases and require a specific, fact-based showing that the releases are justified by unusual circumstances and are necessary to the reorganization.

## Conclusion

The bankruptcy court refused to enforce a broad plan release against nonvoting creditors, holding that silence did not establish consent, that jurisdiction did not extend to releasing many direct third-party claims as drafted, and that the debtors failed to justify any nonconsensual releases under the Second Circuit’s stringent standard.


In re SunEdison, Inc., 576 B.R. 453 (Bankr. S.D.N.Y. 2017)