Case Roundup for July 13, 2026

By Steve Jakubowski, July 13, 2026

Posted in Recent Case Law Developments

Chapter 15 Recognition Order Modified to Limit Injunctive Relief Against Related Non-Debtor Entities – In re Prince Global Holdings Ltd., 2026 WL 1758972 (Bankr. S.D.N.Y. June 18, 2026): Judge Glenn had, one week earlier, recognized as a foreign main proceeding the British Virgin Islands (BVI) liquidation proceedings of certain BVI-based entities affiliated with the Prince Group, which he described as “a complicated series of entities that sit atop an empire of fraud and forced labor.” One of the directors, Cosimo Borrelli, objected to the Chapter 15 petition and recognition of the BVI proceedings of each of the debtors as a foreign main proceeding, but his objections were overruled in a lengthy opinion. See In re Prince Global Holdings Ltd., 2026 WL 1694259 (Bankr. S.D.N.Y. June 11, 2026). In this decision, Judge Glenn addressed Borrelli’s objections to specific terms of the proposed recognition order. Borrelli argued that certain paragraphs improperly restricted the rights of non-debtor entities and interfered with ongoing legal proceedings by displacing a non-debtor claimant in favor of the JPLs.

Two of Borrelli’s objections were persuasive: First, Judge Glenn reformulated Paragraph 21 of the proposed Order to limit the injunction to the Debtors and their controlled subsidiaries while allowing non-debtor Prince entities to continue litigating the EDNY forfeiture action. Second, Judge Glenn granted the request to include language that the JPLs’ powers over “the administration or realization of all the Debtors’ property within the territorial jurisdiction of the United States” are “subject to section 363 of the Bankruptcy Code.” The Court stated that “[a]lthough the inclusion of this language may be redundant as the sale of assets is subject to the requirements of section 363 regardless of the language,” the Court still granted Borrelli’s request to include this language.

An Opt-Out Mechanism that Provides Adequate Notice Can Render a Release Consensual under Purdue Pharma – In re Lutheran Home and Servs. for the Aged, Inc., 2026 WL 626606 (Bankr. N.D. Ill. March 4, 2026): Eight not-for-profit corporations operating a skilled nursing facility and retirement communities in Illinois and Indiana filed Chapter 11 and negotiated their way to a Fourth Amended Plan of Reorganization. The plan was described as a “global package” in which all provisions, including releases, were “required.” The plan included “deemed substantive consolidation” (limited to voting and plan distributions), estate releases of claims without foreseeable worth, third-party releases with an opt-out mechanism, an exculpation clause, and gatekeeping provisions. The UST objected to all of these features.

Judge Slade held that so long as third-party releases are consensual, they remain permissible under Section 1123(b)(6), and—as a matter of apparent first impression for the Court—that an opt-out mechanism providing adequate notice can render a release “consensual.” The Court found the requisite consent by (i) creditors who voted “yes” on the plan and (ii) unimpaired creditors who were deemed to accept because they received opt-out notices and did not exercise them. After reviewing the landscape of decisions on the validity of opt-out releases in light of the Supreme Court’s decision in Harrington v. Purdue Pharma L. P., 144 S. Ct. 2071 (2024), the Court stated:

“The bottom line is that for the reasons described in the Seventh Circuit’s caselaw [in FutureSource LLC v. Reuters Ltd., 312 F.3d 281 (7th Cir. 2002) and Fogel v. Zell, 221 F.3d 955 (7th Cir. 2000)], in Spirit [Airlines, Inc., 668 B.R. 689, 707–08 (Bankr. S.D.N.Y. 2025)], and in Container Store [Grp, Inc., 676 B.R. 356, 376 (S.D. Tex. 2026)], I believe the “opt-out” framework can work to imply consent to an appropriately scoped third-party release by some creditors in some circumstances. Provisions like the [third party release (TPR)] are not appropriate in all cases and won’t be appropriate in most Chapter 11 cases. But they are necessary in many complex Chapter 11 cases and, where they are narrow and safeguards are in place to imply consent, I am prepared to confirm plans that include them.”

The Court also approved the exculpation clause as not overly broad even though it was not limited to estate fiduciaries because the only acts covered by the provision were those directly related to restructuring activities approved by the Court. The Court also held it had jurisdiction to serve the gatekeeper function (which required leave of Court before certain plan participants could be sued for acts related to the bankruptcy under the plan) because (i) it was best-equipped to determine whether a claim colorably circumvented its orders and (ii) funneling all questions of what was and was not barred through Court promoted efficiency and ensured consistency of interpretation and application.

Merchant Cash Advance Agreements Held, Unambiguously, to Be Disguised Loans, Not True Sales – Crosby Tugs, L.L.C. v. Meged Funding Group (In re Crosby Marine Trans., LLC), 2026 WL 1765197 (Bankr. E.D. La. June 17, 2026): Crosby Marine Transportation and its affiliated debtors—operators of a 200-vessel fleet providing tugboat, dredging, and coastal restoration services—filed Chapter 11 in early 2026 and immediately launched an adversary proceeding against dozens of merchant cash advance providers and customers seeking declarations that their accounts receivable (roughly $10.8 million for Crosby Tugs and $7.9 million for Crosby Dredging) are estate property, turnover of those receivables, injunctive relief barring MCA defendants from intercepting customer payments, and recharacterization of the MCA agreements as disguised loans. The Debtors moved for partial summary judgment against Freedom Funding LLC on two Revenue Purchase Agreements: one from December 2025 in which Freedom paid $100,000 for $150,000 in future receipts and one from February 2026 in which Freedom paid $250,000 for $375,000 in future receipts. Freedom opposed the motion, claiming the agreements are true sales and that summary judgment is premature because it needed to conduct discovery on “the actions of the Debtors in connection with confection, execution and prepetition performance under the MCA agreements generally.” The Court, however, found the language of the MCA Agreements unambiguous and ruled solely based on the text of the contracts without extrinsic evidence.

In granting partial summary judgment for the Debtors, the Court held that the Freedom MCA Agreements were disguised loans rather than true sales under New York law. The Court noted that several provisions in the Freedom MCA Agreements effectively shielded Freedom from all risk that the purchased receivables may be uncollectible such that “[t]he Debtors overwhelmingly bear the direct risk of non-payment of the Crosby Accounts Receivable.” Further, the Court stated, “the fact that no specific receivables are identified in the Freedom MCA Agreements bears strongly on the question of risk because the Debtors’ obligation to repay the purchase price is independent of the collectability of any particular receivable.” The Court also highlighted the broad security package and loan-like structure of the agreements, both of which were indicative of a loan rather than a sale. Freedom, for example, had direct access, control, and authority to sweep funds from the Debtors’ bank account, and the transaction was further supported by a personal guarantee that insured the Debtors’ absolute payment obligation.

In sum, the Court concluded, the repayment and remedy terms of the MCA agreements operated more like a standard, high-interest-rate loan with a de facto fixed term (calculated by dividing the amount that the Debtors owe by the amount of daily payments) than a genuine transfer of risks associated with specified receivables. Moreover, the unambiguous terms of the Freedom MCA Agreements revealed the Debtors’ complete exposure to the direct risk of non-payment of their accounts receivable, thus warranting a finding that the transaction was a disguised loan rather than a true sale.

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