Preserving Pre-Petition Claims in Chapter 11 Plans: a Circuit Review

In 2011, the Bankruptcy Court for the Southern District of Texas, in In re MPF Holdings US LLC,¹ addressed the appropriateness of provisions in a Chapter 11 plan that sought to preserve a debtor’s pre-petition claims against third parties for prosecution post-confirmation. Section 1123(b)(3)(B) of the Bankruptcy Code² provides that a plan may contain a provision for “the retention and enforcement” of a claim or interest by the debtor, trustee, or a representative of the estate. If pre-petition claims of the debtor or the estate are not preserved in the Chapter 11 plan under Section 1123(b)(3)(B), res judicata or collateral estoppel bars those pre-petition claims from being raised post-confirmation.³ The preservation of these types of claims is so engrained in the plan drafting process that practitioners might not stop to think about the “boilerplate” language they use in their “claims preservation” provisions.

Three approaches have been developed by courts when addressing this issue. Some courts permit sweeping buckets or broad, categorical preservation provisions. Others have taken a middle of the road approach and look at the preservation provision on a case-by-case basis. Finally, some courts require the preservation provision in a Chapter 11 plan to be very specific and precise as to which pre-petition claims are being preserved for post-confirmation prosecution.

Circuit Review