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 (2nd Edition)

Denmark Small Flag Denmark

Restructuring proceedings cannot release claims against non-debtor parties.

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.

Australia Small Flag Australia


A DOCA cannot be used to extinguish claims against non-debtor parties. A DOCA only releases creditor claims against the company the subject of the administration.

Scheme of arrangement

Schemes can be used to effect releases of claims against non-debtor parties and are a flexible mechanism for implementing a broad settlement between creditors and third parties. Schemes of arrangement can be used to extinguish subordinated claims without requiring the holders of those claims to consider or agree to the scheme (assuming it can be shown that they are out of the money). This means that schemes of arrangement can be used to eliminate the risk that a company might be exposed to shareholder claims, including class actions.

Belgium Small Flag Belgium

No, unless the relevant creditor agrees therewith. In both a reorganization and bankruptcy procedure, however, an exception thereto exists with respect to the so-called “guarantee free of charge”.

The Netherlands Small Flag The Netherlands

Approval of a composition plan does not automatically release claims of non-debtor parties. In that respect, please note that it may be possible to release for example a guarantee in connection with a composition plan, however, while the non-debtor’s obligations would be extinguished in respect of those creditors who voted in favour of the composition plan, it remains uncertain under Dutch law to what extent the aforementioned guarantee obligations would be extinguished in respect of those creditors who did not vote in favour of the plan or abstained from voting.

United States Small Flag United States

Releases of non-debtors—or third-party releases—are permitted under the Bankruptcy Code in some circumstances, but courts disagree about the extent to which these third-party releases are permissible. Section 1123 of the Code provides that a plan may “provide for settlement or adjustment of any claim or interest belonging to the debtor or to the estate” and may “include any other appropriate provision not inconsistent” with the Code. Similarly, section 105(a) provides that a bankruptcy court “may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.” Thus, there is statutory support for the allowance of third-party releases.

Generally, the most common form of third-party releases are for directors and officers of the debtors. Claims held by debtors against these “insiders” are generally permitted if the release is considered procedurally and substantively fair. Similarly, releases that require the consent of affected creditors are generally allowed, but courts disagree about acceptable forms of consent. Some courts take a narrower and more strict view of consent, requiring that creditors affirmatively approve the plan to demonstrate their consent, while other courts take a more broad view of consent and have held that unimpaired creditors or creditors who do not vote on the plan or do not object are considered to have consented.

In some limited circumstances, courts in some jurisdictions will allow non-consensual third party releases if the court considers such releases necessary to the debtor’s successful reorganization.

Luxembourg Small Flag Luxembourg

No unless the relevant creditor agrees to do so.

New Zealand Small Flag New Zealand

It is not unusual for a deed of company arrangement (DOCA) or Part 14 or 15 compromise/scheme of arrangement to purport to provide for the release of potential claims against directors or other related parties of a debtor.

The effectiveness, however, of any such release is an unsettled issue in New Zealand law because, in general, the creditors of a debtor entity cannot be bound through a DOCA, compromise or scheme, to give up claims against any entity other than the debtor in question. The New Zealand Courts whilst not expressing a view on the overall effectiveness of any such release, have indicated that a purported release of claims against parties owing duties to the debtor company, not to individual creditors, would be viewed differently from the release of valuable creditor rights against related companies, third party guarantors or even director guarantors.

Romania Small Flag Romania

By the reorganization plan, creditors may waive certain rights of claim they have against the debtor, the condition being that the plan provide for such a thing expressly, and such creditors manifest their consent to this end. Transactions with the creditors’ approval and the syndic judge’s approval may be also concluded.

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, in cases 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.

Israel Small Flag Israel

It is common that debt settlements includes release of shareholder and officer of the company, subject to an approved contribution of the controlling shareholder to the debt arrangement or to the company in order to maintain its control. Officers (or D&O insurers), sometimes contribute directly in exchange for a waiver from the company and creditors.

The courts will generally accept such releases, duly approved by the creditors, unless it finds it to be contrary to public policy, vastly unjustified etc.

In the case of Africa Investments (Israel) Ltd., currently undergoing through its second debt arrangement, the Supreme Court held that the first debt arrangement release provision couldn't release the controlling shareholder from fraudulent actions which were not specifically disclosed and included in the release provision.

In the second debt settlement currently heard, the court questioned both the amount and rational of the release approved by the creditors and asked the creditor to reconsider the release to the controlling shareholder.

Updated: April 20, 2018