Outline of Key Issues for Issuing Channeling Injunctions In Favor of Nondebtor Third Parties
by Theodore L. Freedman
Kirkland & Ellis LLP; New York
Deanna D. Boll
Kirkland & Ellis LLP; New York
Two Key Components to Analysis -- To Issue Permanent Injunctions In Favor Of Nondebtor Third Parties, Court Must Have Jurisdiction And Power under The Bankruptcy Code
The bankruptcy court must have jurisdiction to entertain an action between the parties. It is universally accepted that a bankruptcy court may have jurisdiction over claims involving nondebtor third parties pursuant to its “related-to” jurisdiction provided under 28 U.S.C. §1334(b). Most courts apply the Pacor test in determining whether related-to jurisdiction exists.
Digest of Recent Third Circuit Court of Appeals Decisions in Major Asbestos Cases
In re Armstrong World Indus., 432 F.3d 507 (3d Cir. 2005), the Third Circuit held that the absolute priority rule prohibited confirmation of a reorganization plan proposed by debtor Armstrong World Industries Inc. ("Armstrong"). The plan contemplated the issuance of warrants to a junior class of interests over the objection of a class of senior impaired interests. The court held that, among other things, the proposed plan ran afoul of the plain language of the "absolute priority rule" of §1129(b) of the Bankruptcy Code and that equitable exceptions to the absolute priority rule did not apply under the circumstance.
Read the full article. (Materials from the 2006 Delaware Views from the Bankruptcy Bench and Bar).