We have discussed plan releases in prior posts. Oftentimes, disputes involving plan releases revolve around whether, and in what contexts, third-party releases in plans are appropriate. Recently, the Third Circuit Court of Appeals addressed the relatively unique question of whether releases in a confirmed plan are binding upon post-confirmation purchasers of the debtor's stock. The Court's decision in Arctic Glacier Int'l, Inc. puts buyers of a debtor's claims and shares on notice that they are bound by the terms of the plan, including third-party release provisions.
In Arctic Glacier, the debtors, including Arctic Glacier Income Fund ("Arctic Glacier"), filed for protection under Canada's Companies Creditors' Arrangement Act. The debtors also filed for and received recognition under Chapter 15 of the Bankruptcy Code. Under the debtors' plan of arrangement (the "Plan"), Arctic Glacier was to liquidate and distribute the proceeds to its creditors, giving lowest priority to shareholders. A Monitor appointed under the Plan was empowered to sell and distribute assets with few limitations on when or how much he could distribute as long as he gave 21 days' notice of any distribution.
The Plan included broad releases of liability and insulated Arctic Glacier and its officers from any claim "in any way related to, or arising out of or in connection with" the bankruptcy. The only exceptions were for claims to enforce the Plan, those for gross negligence or willful misconduct and those whose release was not "permitted by applicable law."
After all creditors had been paid in full, the Monitor gave notice that he was set to distribute dividends to shareholders. None of these notices specified how much the Monitor would distribute or when. Moreover, the Monitor did not notify the Financial Industry Regulatory Authority (FINRA), the organization charged by the Securities and Exchange Commission with regulating distributions on the U.S. Over-the-Counter Market, of his intent to make distribution to shareholders.
Appellants purchased more than 12 million Arctic Glacier shares after the Monitor had given notice of distributions. Appellants' purchases were presumably based upon an assumption that FINRA's rules applied to the Monitor's distributions since under the FINRA rules, Appellants would be entitled to the dividends. However, the Monitor took the position that the FINRA rules were inapplicable and paid the dividends to the original...