UST Objects to Mitel Prepack Plan, Targeting Nondebtor Release, Gatekeeper Provisions

Relevant Document:
Objection

On April 10 the U.S. Trustee, the bankruptcy watchdog for the Department of Justice, objected to the Mitel Networks prepackaged plan’s opt-out nondebtor release and gatekeeper provisions. The UST argues that creditors will be deemed to release nondebtors under the plan unless they affirmatively opt out, and that this makes the nondebtor release a nonconsensual release forbidden by the U.S. Supreme Court in Purdue. The UST also takes aim at the plan’s injunction and gatekeeper provisions, which it says would require litigants to ask for leave of the bankruptcy court before litigating certain claims against nondebtors. The UST says the provision violates the Fifth Circuit’s March 18 Highland decision.

The debtors do not face any other formal opposition to confirmation, having received no other objections by the April 10 deadline.

The UST’s opt-out nondebtor release objection mirrors the arguments that UST offices in various jurisdictions have been making since Purdue, which have largely been rejected. The UST argues that nondebtors cannot be released without a showing of affirmative consent. Consent is governed by state law, the UST argues, and the plan’s release-by-default structure does not demonstrate consent under state law – especially for creditors that vote against the plan or abstain from voting.

The UST’s objection to the gatekeeper provision rests on the Fifth Circuit’s decision in Highland. In that case, the UST says, the Fifth Circuit said bankruptcy plans must limit injunction and gatekeeper provisions to debtors or court-appointed officers. The UST argues that the plan’s injunction and gatekeeper provisions extend to nondebtors, in violation of Highland.

The confirmation hearing is scheduled for Thursday, April 17, at 12 p.m. ET.