To Release Or Not To Release - If That Is The Question, What Is The Answer?

In a recent decision by the Bankruptcy Court for the District of Delaware, the court adopted a flexible approach to consensual third party releases in a plan of reorganization. In In re Indianapolis Downs, LLC, 2013 Bankr. LEXIS 384 (Bankr. D. Del. Jan. 31, 2013), the court permitted third party releases where creditors failed to opt out of the release provisions of the plan either by not submitting their vote on the plan, or by voting against the plan but failing to check the "opt out" box on the ballot. The Indianapolis Downs decision highlights a split in the Delaware bankruptcy court with the decision handed down in In re Washington Mutual., 442 B.R. 314 (Bankr. D. Del. 2011).The Indianapolis Downs debtors operated a horse racing track and casino in Shelbyville, Indiana. The debtors filed for Chapter 11 protection in April 2011, and within a year had proposed a plan, which included certain third party releases. Third party releases are releases by non-debtors of non-debtors, and are...