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Pragmatic Post-Purdue Approach Behind NJ’s Rise As Strong Venue Option for Chapter 11 Cases
One of the key elements of a Chapter 11 plan that bankruptcy courts must tackle is the extent of the plan’s releases, including whether a requirement that parties must affirmatively “opt-out” of a plan’s releases sufficiently manifests consent to the releases for those that do not opt-out. The U.S. Supreme Court’s 2024 decision in Harrington v. Purdue Pharma sparked nationwide debate over how consent to third-party releases is addressed in Chapter 11 bankruptcy plans.
While the Supreme Court clarified that claimants must consent to third-party releases, it left a critical question unanswered: Do release opt-out provisions constitute valid consent?
In the wake of this ambiguity, New Jersey bankruptcy courts have continued their consistent pre-Purdue trend of approving opt-out provisions in Chapter 11 plans, emphasizing a pragmatic and flexible approach. This stands in contrast to certain other jurisdictions, including Delaware, where some bankruptcy judges have intensified their scrutiny of plan release language in recent cases and have favored opt-in mechanisms over opt-out provisions to manifest consent.
This consistency in New Jersey in approving opt-outs — even post-Purdue Pharma — along with other practical considerations, such as bidding procedures and full DIP roll-ups being approved on day one and efficient management of cases, is why New Jersey has become a hotbed for Chapter 11 bankruptcy filings, including well-known companies such as Rite Aid, WeWork, Bed Bath & Beyond, David’s Bridal, Sam Ash and BowFlex, among many others.
In the 12-month period ending Sept. 30, 2024, there were 1,148 Chapter 11 filings in New Jersey — a 575% increase over the 170 Chapter 11 cases in the 12-month period ending Sept. 30, 2021 (see chart below). Compare that to the increase of roughly 60.2% in Chapter 11 filings nationwide in 2024 vis-à-vis 2021.
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