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I “Noticed” You Want a Third-Party Release...

Practitioners continue to navigate the developing case law with respect to nondebtor third-party releases in Chapter 11 plans. Such releases, while not expressly authorized or prohibited by the Bankruptcy Code, are generally considered to fall within a bankruptcy court’s powers under § 105 (a), which states that the court has the power to "issue any order ... that is necessary or appropriate to carry out the provisions of this title." In Behrmann v. National Heritage Foundation Inc., the Fourth Circuit stated that a "bankruptcy court is authorized to approve equitable relief in the form of [nondebtor release provisions] when circumstances warrant." Such releases should be "granted cautiously and infrequently," and when the surrounding circumstances are unique. The recent confirmation of a chapter 11 liquidating plan in In re Neogenix Oncology Inc. suggests that consent to the nondebtor releases, or at least notice to the releasors, can play an increasingly significant role in this analysis.

First Amended Plan Was Denied Due to Lack of Informed Consent

Neogenix Oncology Inc. was a former clinical stage, pre-revenue generating biotechnology company that was focused on developing therapeutic and diagnostic products for the early detection and treatment of cancer — particularly pancreatic and colorectal cancer. Due to its pre-revenue status, Neogenix funded these efforts and operations almost exclusively from grants and the sale of its common stock. Problems arose due to the sale of its common stock through individuals who were unlicensed, compensated finders — an issue that later hindered Neogenix’s ability to raise capital and ultimately led it to seek chapter 11 protection. At the time of its filing, Neogenix had approximately 950 shareholders, nominal debt, and directors and officers who held contingent, unliquidated claims for indemnification in the event any claims were filed against them.

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