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Respondents Divided Over Bankruptcy Courts Authority to Issue a Nondebtor Release Over a Creditors Objection

Contact: John Hartgen
             703-739-0800
             jhartgen@abiworld.org

RESPONDENTS DIVIDED OVER BANKRUPTCY COURTS’ AUTHORITY TO ISSUE A NONDEBTOR RELEASE OVER A CREDITOR’S OBJECTION



June 24, 2008, Alexandria, Va. — Respondents to the latest ABI Quick Poll were divided over whether bankruptcy courts have the authority to issue nondebtor, or third party, releases over a creditor’s objection in appropriate circumstances. Fifty percent of respondents did not think that bankruptcy courts had such authority. Thirty-eight percent “strongly disagreed” and 12 percent “somewhat disagreed.”
 
Thirty-nine percent of respondents, however, thought that courts do have the authority to issue nondebtor releases over a creditor’s objection in appropriate circumstances. Twenty-two percent of respondents “strongly agreed” and 17 percent “somewhat agreed.” Nine percent of respondents did not know or no opinion on the issue.
 
The poll was based on the case In re Airadigm Communications, Inc., in which the Seventh Circuit Court of Appeals affirmed a bankruptcy court’s ruling to release a third party financier from liability over the objection of a creditor, the Federal Communications Commission in this case. The Seventh Circuit found that the bankruptcy court was within its authority to grant the third party financier a limited release from liability since financing from the third party was essential to the reorganization and the release was appropriately tailored so that the financier was not exempt from liability to willful misconduct.
 
ABI members and members of the public were welcome to submit their response to the statement: “Bankruptcy courts have the authority to issue nondebtor releases over a creditors’ objection in appropriate circumstances. (In re Airadigm Communications, Inc., 2008 WL 649704 (7th Cir. 2008)).”
 
ABI’s Quick Poll is posted on ABI’s home page, www.abiworld.org. ABI members and the public are invited to respond to a question on a timely bankruptcy or insolvency issue. Visit http://www.abiworld.net/quickpoll/ to access the results of previous ABI Quick Polls.

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ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes nearly 11,700 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit www.abiworld.org. For additional conference information, visit http://www.abiworld.org/conferences.html.