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)

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.

Indonesia Small Flag Indonesia

No, the restructuring proceedings cannot release claims against non-debtor parties, especially the claim against the guarantors of the debtor and the claim against the director of the debtor.

IBL clearly stipulates that although a composition is reached in Bankruptcy Proceedings, the creditors still have the rights against the guarantors and co-debtors. Further, IBL also states that the PKPU do not apply to the benefit of the co-debtors and the guarantors.

On the claims against directors of the debtor, the personal liabilities of the directors (and the commissioners) of a company to the third party, including those under the Company Law (e.g.: due to his/her fault or negligence in performing its task, incorrect or misleading financial report) should not be released due to the company’s restructuring proceedings.

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.

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.

South Africa Small Flag South Africa

Claims under guarantee or surety:
A surety’s liability for a company under a compromise with creditors is not affected.
Sureties are released automatically if the underlying debt is compromised in the business rescue proceedings (due to its accessory nature), unless the surety wording specifically records that the obligation of the surety will remain in place notwithstanding business rescue and any possible compromises thereunder.

Guarantors are not automatically released unless the guarantee or business rescue plan wording specifically records that the obligation will be extinguished.

As for claims against directors:
Directors will remain liable for any claims against directors for their actions prior to business rescue. Insofar as conduct during business rescue proceedings are concerned, to the extent that directors act in accordance with the instructions of the practitioner, they are released from incurring liability save for specific instances, e.g. having been party to a fraudulent act.

Brazil Small Flag Brazil

The restructuring proceeding will not suspend or release claims against non-debtor parties and guarantees extended by third parties would still be enforceable.

Czech Republic Small Flag Czech Republic

Liabilities of non-debtor parties remain unaltered by the reorganization proceedings under Czech laws.

Cayman Islands Small Flag Cayman Islands

A scheme of arrangement is a very flexible and useful tool for implementing debt restructurings where the unanimous consent from stakeholders of a company cannot be achieved. A scheme can be used to release claims against non-debtor parties provided there is a sufficiently close connection between the subject matter of the scheme and the relationship between the company and its creditors and/or members.

It is common in creditors' schemes of arrangement for the scheme creditors to grant a broad release of claims against the scheme company itself and also against the directors, officers, employees and advisors of the company in connection with the scheme and any broader restructuring of which the scheme forms part. It is also possible that a scheme may be used to release a guarantee granted by a parent entity which is not itself party to the proposed scheme.

Japan Small Flag Japan

No, claims against non-debtor parties cannot be released under either civil rehabilitation proceedings or corporate reorganisation 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.

British Virgin Islands Small Flag British Virgin Islands


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.

Bermuda Small Flag Bermuda

Subject to the law governing the underlying obligation, it is possible as part of a restructuring to release non-debtor parties from liabilities to the debtor.

See question 12 below in respect of directors.

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.

Mexico Small Flag Mexico

Yes, if approved by the Recognized Creditors and the Insolvency Judge in the Reorganization Agreement.

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.

Portugal Small Flag Portugal


Updated: July 9, 2018