Can a restructuring proceeding release claims against non-debtor parties (e.g. guarantees granted by parent entities, claims against directors of the debtor), and, if so, in what circumstances?

Restructuring & Insolvency (3rd edition)

Canada Small Flag Canada

CCAA plans of arrangement and BIA Proposals typically provide for the release of the debtor company’s directors and officers from tort or contributory claims relating to the insolvency of the debtor company, although Courts will rarely release directors and officers from claims arising from allegations of fraud and gross negligence.

There is also considerable jurisprudence in Canada in favour of Court-ordered third-party releases in the context of class action-related CCAA restructurings. The typical example is as follows:

The debtor company is crippled by having to defend in a tort-related class action litigation and resorts to seeking CCAA protection. The debtor company holds contribution (or, in Québec, “recursory”) claims against third-parties. The debtor company seeks to monetize these claims by reaching advance settlement agreements with those third parties. The third parties agree to pay the debtor company in consideration for the release of the contribution/recursory claim, but conditional on the debtor company obtaining an order whereby the third parties are also released from the claims that any fourth party could have against them in relation to the events surrounding the class action. In considering whether to grant the order with the releases sought, the Court will consider, among other things, the following: (i) whether the third parties’ contribution is reasonable and will be sufficiently instrumental to the debtor company being able to negotiate a successful Plan; and (ii) whether the proper administration of justice militates in favour of the releases, in order to avoid a multiplicity of proceedings.

British Virgin Islands Small Flag British Virgin Islands


Cayman Islands Small Flag Cayman Islands

A scheme of arrangement (see question 8) may be used to release claims against non-debtor parties such as directors, employees, advisors as well as against guarantors.

China Small Flag China

Chinese law clearly provides that a creditor’s claim against a debtor’s guarantor or any other obligor that is jointly and severally liable with the debtor is not be affected by the debtor’s restructuring plan. During the restructuring proceedings, non-debtor parties are not exempted from being sued, and the rights to sue non-debtor parties are not prejudiced by the restructuring.

Denmark Small Flag Denmark

Restructuring proceedings cannot release claims against non-debtor parties.

France Small Flag France

In a safeguard proceeding, the non-debtor parties must fulfil their duties despite the failure by the debtor to respect its commitments prior to the opening judgment. The failure to implement these commitments by the debtor only entitles creditors to petition their claim just as any other creditor.

Germany Small Flag Germany

German insolvency law does not provide for a release of non-debtor parties without the beneficiary’s consent. Sec. 254 para. 2 Insolvency Code expressly states that an insolvency plan must leave unaffected the rights entitling the insolvency creditors against the debtor’s co-obligors and guarantors, as well as the rights of such creditors to objects not forming part of the insolvency estate. The plan shall, however, discharge the debtor of its co-obligor’s, guarantor’s and any other redressing party’s claims against it in the same way as it is discharged of the insolvency creditors’ claims. Against this background, non-debtor parties who assumed the position as co-obligor/guarantor may have to file for insolvency in order to deal with this issue in corresponding insolvency plans.

Bermuda Small Flag Bermuda

The restructuring proceeding can release claims against non-debtor parties where the Company would otherwise have the power to do so. Release may be given either through a scheme of arrangement or by agreement of the liquidator or provisional liquidator on behalf of the company. Claims of third parties against non-debtor parties cannot be released in the insolvency process.

Guernsey Small Flag Guernsey

There are no formal mechanisms under Guernsey law that provide for any of the above.

Ireland Small Flag Ireland


Where an Examiner is appointed to a company, the beneficiary of a guarantee in respect of the obligations of that company is prohibited from taking steps to enforce the guarantee during the period of court protection. However, the beneficiary of the guarantee will be able to enforce post-examinership provided that he offers to transfer to the guarantor the right to attend and vote in his place at the creditors’ meetings with respect to the Scheme of Arrangement. This offer must be made in strict compliance with certain time limits (not less than 14 days before the meeting if more than 14 days’ notice is given or within 48 hours of receipt of the notice of the meeting where less than 14 days’ notice is given). If the beneficiary does not make the offer to the guarantor or does not make it within the statutory time-limits, the beneficiary cannot enforce the guarantee post-examinership.

If the scheme is approved and the guarantor has discharged the debt, any payment to which the creditor would have been entitled to under the Scheme of Arrangement becomes payable to the guarantor. Should the Scheme of Arrangement not take effect, the beneficiary may apply to the court seeking leave to commence proceedings against the guarantor.
It is not currently clear whether a guarantee in respect of the non-payment obligations of a company in examinership can be enforced following post-completion examinership.

It is important to note that:

  • the liability of the guarantor can be written down along with the liability of the company where the terms of the guarantee so provide; and
  • if the guarantor is itself a company in examination, including a related company, its liability under the guarantee can be written down under any Scheme of Arrangement proposed with respect to the guarantor.

Jersey Small Flag Jersey

  1. There is no formal mechanism for such releases although they may be approved in the course of a scheme of arrangement.
  2. The Viscount has the power to compromise all claims in a désastre (Désastre Law Art.26)
  3. In the course of winding up processes or a liquidator have powers to release claims with the consent of a creditors' committee if convened, the body of creditors or the Royal Court. (Companies Law Art.170)

Mexico Small Flag Mexico

The reorganization plan, with the validation of the court, would become binding on (1) the debtor; (2) all unsecured and subordinated creditors (regardless of whether or not they signed the reorganization plan); (3) all signing secured and priority creditors; and (4) all secured and priority creditors whose claims are stated to be paid in full, subject to certain legal rules concerning quantification.

In the absence of specific consent, any discharge would benefit the debtor only and will not be extended to non-debtors.

Peru Small Flag Peru

The Insolvency Act provides that the approval of the Restructuring Plan does not release claims against third-party guarantors unless such guarantors have provided for the termination of the guarantee in the guarantor agreement.

Poland Small Flag Poland

Such possibility exists, but is of extrajudicial, less formal and less strict nature – usually is done within workouts or standstill agreements, instead of in formal restructuring proceedings.

Singapore Small Flag Singapore

There is no automatic release of claims against non-debtor parties. However, it is fairly common for such provisions to be included as part of the terms of a scheme of arrangement.

Sweden Small Flag Sweden

No, restructuring proceedings do not have the effect of releasing claims against non-debtor parties. As a general rule the duties of the debtor’s directors remain virtually the same even during restructuring proceedings.

Switzerland Small Flag Switzerland

A composition agreement generally has effects only as between the insolvent debtor and its creditors. As an exception to this rule, a creditor retains its rights against a third party providing credit support for the obligations of the insolvent debtor (e.g., guarantors, surety providers and joint and several debtors) only (i) if such creditor rejects the composition agreement or (ii) in case such creditor approves the composition agreement, if it has previously informed the third party of the upcoming vote on the composition agreement and has further offered to sell its claim for face value to the relevant third party.

Director's liability claims will not be formally released in Swiss restructuring proceedings. That said, where the debtor continues to exist as a legal entity following completion of a restructuring, it is very rare that creditors (other than shareholders) have a claim against directors of the debtor. Where the restructuring leads to dissolution of the debtor, it is more common for creditors to have a claim against the former directors resulting from directors' liability. However, such claims are first being pursued by the liquidator for the benefit of the estate. Individual creditors may only pursue their claims after the majority of the creditors on behalf of the estate have decided not to pursue the respective claims.

Spain Small Flag Spain

The SIA does not regulate any cases where the claims against non-debtor parties are released, as could be a bond or non-debtor mortgagor.

In case of bonds, the SIA and SCC only establish that the guarantor shall enjoy the same befits as the debtor. Consequently, if the creditor accepts an acquaintances, moratoriums or both, the guarantor will enjoy them as well (art. 87.6 and 135 SIA and art. 1839 SCC).

Regarding the non-debtor mortgagor, the guaranteed credit will not be qualified as a credit with special privilege because the encumbered assets do not take a part of the debtor’s estate. If the creditor wants to satisfy his credit, he shall initiate a separate executive proceeding of the insolvency proceeding.

United States Small Flag United States

Under certain circumstances, non-debtor parties may be released in a bankruptcy case. For example, bankruptcy court orders approving DIP financing, sales of assets under section 363 and approving settlements under Bankruptcy Rule 9019 may contain non-consensual third-party releases of non-debtor parties. In addition, a debtor’s plan of reorganization may also release non-debtor parties. To be approved, the releases in a plan should be necessary for the debtor’s reorganization and fair to creditors and other interested parties, and the debtor’s estate must receive consideration from the individuals and entities being released. In addition, a debtor’s plan may contain an exculpation provision which immunizes directors and other stakeholders (e.g., professionals representing the debtor or an official committee) from liability for actions taken in the reorganization case, including the formulation and confirmation of a plan of reorganization.

United Kingdom Small Flag United Kingdom

Yes, in certain circumstances; most commonly seen in schemes of arrangement. Claims against third party guarantors may be released or amended by the scheme if necessary for the successful operation of the scheme (to avoid ricochet claims against the principal debtor). A release of claims against persons involved in the preparation, negotiation or implementation of a scheme, and their legal advisors, is also permissible. Issues might, however, arise where a scheme creditor has a more tangential claim against a third party.

Hungary Small Flag Hungary

A restructuring proceeding may release the underlying principal obligation of the debtor which as a consequence will extend to ancillary obligations (e.g. guarantees of third parties granted as security for the principal obligation), with the exception if the ancillary obligation (e.g. guarantee) has been enforced by the creditor prior to the final and binding approval of the agreement by the court.

Belgium Small Flag Belgium

No, with the exception of claims against non-debtor parties that are natural persons who provided guarantees free of charge for the benefit of the debtor and provided such guarantees related to the professional activity of the debtor.

Israel Small Flag Israel

It is common that a release from claims will be granted to the controlling shareholder and to officers of the company as part of a creditor restructuring agreements. Such release is typically granted against a financial contribution by said parties to the restructuring fund. Case law indicates that in general, granting such a release is a matter of the creditors' discretion and the Court does not typically intervene in such matter.

Romania Small Flag Romania

The provisions of Law 85/2014 stipulates the conditions under which it may be triggered the liability of the managers and members of the board of directors/managing bord in order to recover all the liabilities.

The jurisprudence also note the circumstances under which even the liability of the director-in-fact could be involved. This hypothesis relates the situation in which an individual carries out a managerial activity with important material resources and it is not expressly empowered as a director.

In both above mentioned situations, the legislation provides a number of eight circumstances in which the liability of these individuals can be triggered, namely if they:

  1. have used the goods or credits of the legal person for their own benefit or for that of another person;
  2. have been manufacturing, trading or providing services for personal benefit under the cover of the legal person;
  3. have, for personal benefit, ordered the continuation of an activity that obviously led the legal person to cease payments;
  4. kept a fictitious account, made some accounting records disappear, or did not keep accounting in accordance with the law. If the accounting documents are not forwarded to the judicial administrator or the liquidator, both the fault and the causal link between the act and the prejudice are presumed. The assumption is relative.
  5. misused or concealed some of the legal entity's assets or fictitiously increased its liability;
  6. have used damaging means to procure funds to the legal person for the purpose of delaying the cessation of payments;
  7. in the month preceding the cessation of payments, have paid or have been willing to pay with a preference to a creditor, to the detriment of the other creditors;
  8. committed intentionally any other act, which has contributed to the debtor's insolvency status, as determined by the provisions of this title.

Updated: June 5, 2019