Not a Time for Second Thoughts: EDNY Holds Settlement Approval Stage Is No Escape Route

September 11, 2017

U.S. Bankruptcy Rule 9019 provides that on a motion brought by a trustee (and thus a chapter 11 debtor-in-possession as well) the court may approve a settlement. The prevailing view is that due to the court’s approval requirement, pre-court approval settlement agreements are enforceable by the debtor but not against the debtor. The District Court for the Eastern District of New York recently disagreed. It held that the statutory approval requirement is not an opportunity for the debtor to repudiate the settlement. Rather, the court held that settlements requiring court approval are binding on all parties to the extent allowable under state law until the court considers and rejects the settlement. Liberty Towers Realty, LLC v. Richmond Liberty, LLC, 569 B.R. 534 (E.D.N.Y. 2017).

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