Charting the Limits of Insolvency Reorganisations : Lehman Brothers Holdings, Inc. v. City of Swan

Australia's corporate insolvency regime strives to provide flexible measures that allow stakeholders of a financially distressed company to come to a mutually beneficial arrangement. As with all insolvency laws, it is possible to bind dissenting creditors to the will of the majority in resolving these disputes. How flexible should corporate insolvency law be in facilitating corporate reorganisations? To what extent can/should individual creditors be forced to limit their rights against other stakeholders in the insolvency, including rights against third parties, in the name of collective benefit? This important question has recently been the subject to conflicting judicial statements in several Federal Court decisions. In April 2010 the High Court of Australia considered the issue in the Lehman Brothers case. This note considers the legal and policy issues involved in this matter and undertakes a comparative analysis of third party releases in corporate bankruptcy reorganisations in Australia, Canada, the US and the UK