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The Growing Circuit Split on Chapter 11 Exculpation Provisions

Many Chapter 11 plans contain provisions providing for the exculpation of claims relating to various bankruptcy stakeholders' involvement in a bankruptcy case, excluding only claims alleging bad faith, fraud, gross negligence, or similar misconduct. These types of exculpation provisions are an important tool to incentivize parties to participate in a debtor's bankruptcy case without fear of being sued for their conduct.

In its recent decision in NexPoint Advisors, L.P. v. Highland Capital Management, L.P. (In re Highland Capital Management, L.P., 48 F. 4th 419 (5th Cir. 2022)), the 5th U.S. Circuit Court of Appeals widened the circuit split on the permissible scope of exculpation provisions.
In this Reuters article authored by Loeb & Loeb Restructuring & Bankruptcy partners Schuyler Carroll and Bethany Simmons and associate Noah Weingarten, the writers discuss a 5th Circuit bankruptcy case that widens a circuit split on the permissible scope of exculpation provisions and how the ruling will be relevant in cases involving a litigious creditor body.