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Cross-Border Implications of the U.S. Supreme Court’s Decision in Harrington v. Purdue Pharma L.P.

July 8, 2024

On June 27, 2024, the Supreme Court of the United States released its highly anticipated decision in William K. Harrington, United States Trustee, Region 2, Petitioner v. Purdue Pharma L.P. et al. (Purdue). At issue was whether the U.S. bankruptcy court had jurisdiction to confirm a plan that provided for releases in favour of non-debtor parties, including parties providing a significant monetary contribution in support of the plan itself. In a tightly split 5:4 decision, the majority ruled that these types of third-party releases are not available in Chapter 11 plans under the U.S. Bankruptcy Code (Bankruptcy Code) without the consent of affected claimants.  

In contrast, Canadian courts, including at the appellate level, have taken a different approach, embracing third-party releases as a constructive tool to facilitate restructurings, maximize value for stakeholders and achieve going-concern solutions. 

In this bulletin, we summarize the divergent approach to third-party releases in Canada and the U.S. and highlight the tools available to insolvent debtors with a cross-border presence in the Canadian insolvency regime.

The Purdue Approach to Third-Party Releases

As set out above, in Purdue, the majority ruled that third-party releases are not available to non-debtors in Chapter 11 plans without the consent of affected claimants, finding that there is no authority to grant such releases in any provision of the Bankruptcy Code. However, the majority of the U.S. Supreme Court was careful to note that its decision is “a narrow one,” confined to a finding that “the Bankruptcy Code does not authorize a release and injunction that, as part of a plan of reorganization under Chapter 11, effectively seeks to discharge claims against a non-debtor without the consent of affected claimants.” The majority also emphasized that nothing in the decision should call into question consensual third-party releases offered in connection with a bankruptcy reorganization plan. 

The Purdue decision leaves an open question of how “consent of affected claimants” will be defined in future cases, as the majority declined to expand on this subject.

Third-Party Releases in Canada

In Canada, although there is no express statutory provision providing for the release of third parties (other than directors), third-party releases are a well-established and well-recognized tool to effect a successful restructuring of an insolvent corporation. Early examples of the utility of third-party releases in insolvency proceedings include the Companies’ Creditors Arrangement Act (Canada) (CCAA) proceedings of Canadian Airlines (2000) and Muscletech Research and Development (2007) (Muscletech). Canadian courts will generally approve third-party releases where (1) the releases have a reasonable connection to the plan and are necessary for it; (2) the released parties tangibly contribute to the plan; and (3) the releases are necessary for the plan to succeed. 

The legitimacy and utility of third-party releases in CCAA proceedings was confirmed by the Ontario Court of Appeal (ONCA) in Metcalfe v. Mansfield Alternative Investments II (2008) (Metcalfe) as part of the restructuring of Canada’s asset-backed commercial paper market. In Metcalfe, the ONCA established the first part of the above-noted standard for approving third-party releases, finding that the CCAA permits third-party releases in a plan where those releases are “reasonably connected to the proposed restructuring.” Notably, there is no requirement that all affected creditors consent to the third-party release, as long as the plan of arrangement otherwise satisfies the requirements of the CCAA, including a successful creditor vote (being a simple majority in number of voting creditors and two-thirds in value of claims voted in each affected class) and sanction by the court.

Since Metcalfe, non-consensual third-party releases have continued to be a prominent feature of many plans of arrangement where the standard for approving third-party releases has been met, including in the CCAA restructurings of Nortel (2010), Sino-Forest (2013), Target Canada (2016), Payless ShoeSource Canada (2019), Lydian International (2020), and Boreal Capital Partners (2022).

The applicability of third-party releases in Canada is not limited to plans of arrangement. Third-party releases have also been granted in CCAA proceedings as part of orders approving sale transactions (for example, Nelson Education Limited (2015) and Mobilicity (2015)) and, more recently, in conjunction with the approval of “reverse vesting order” (RVO) transactions (see Cirque du Soleil (2020), Quest University Canada (2020) and Bellatrix Exploration (2022)). As is the case with third-party releases under plans of arrangement, the third-party beneficiaries of releases in these contexts have to be found to have made meaningful and necessary contributions to the restructuring of the debtor company. However, in the case of a sale transaction, there is no creditor vote to demonstrate creditors’ support of such releases, although court approval is still required.

Third-party releases have also been granted outside of the CCAA regime, subject to the same test and standard applied under the CCAA, as part of corporate arrangement proceedings under the federal Canada Business Corporations Act and equivalent provincial legislation (see Concordia International Corp.)

Approval of Non-Consensual Third-Party Releases Under Chapter 15 of the Bankruptcy Code

Even before the U.S. Supreme Court’s decision in Purdue, the availability of third-party releases in Chapter 11 proceedings under the Bankruptcy Code was controversial and highly debated. Nevertheless, U.S. bankruptcy courts routinely recognized orders by Canadian courts sanctioning Canadian plans of arrangement, which incorporated non-consensual third-party releases in recognition proceedings under Chapter 15 (see Muscletech, Metcalfe and Sino-Forest).

Unlike the more stringent approach to approving non-consensual third-party releases under Chapter 11 of the Bankruptcy Code, a foreign order granted in foreign insolvency proceedings will typically be recognized under Chapter 15 if the order is not “manifestly contrary to public policy.” In this context, deference and comity are granted to the court vested with plenary jurisdiction over the restructuring proceeding, and a particular form of relief does not need to be available in plenary proceedings under Chapter 11. For example, reverse vesting orders have been recently recognized in the Chapter 15 proceedings of Goli Nutrition (2024), Just Energy (2022) and Nextpoint Financial (2023) despite the fact that reverse vesting orders do not form part of the relief typically granted in plenary U.S. insolvency proceedings. 


In Purdue, the U.S. Supreme Court noted that the decision did not reflect the merits of any particular policy argument regarding the availability of non-consensual third-party releases and instead rooted its decision in strict principles of statutory interpretation. The U.S. Supreme Court did not go so far as to say that third-party releases are unconscionable or contrary to the rule of law and recognized the merits of policy arguments on both sides. 

The decision, therefore, would appear to leave the door open for the recognition in the U.S. of third-party releases granted in other jurisdictions, such as Canada. Debtor companies with a cross-border presence that can appropriately commence a plenary proceeding in Canada may still be able to avail themselves of this critical restructuring tool to maximize recovery for stakeholders and help ensure a going concern solution can be achieved. 

For more information, please contact:

or any other member of our Restructuring & Insolvency group.