Delaware Bankruptcy Court: No Legal Authority for Chapter 11 Plan Gatekeeping Provision
Provisions in chapter 11 plans releasing non-debtors from liability for pre-bankruptcy conduct in exchange for funding for plan distributions, and provisions exculpating estate fiduciaries and other key parties for actions taken during the bankruptcy case, have long been used as a means to facilitate confirmation of plans. Although the U.S. Supreme Court's landmark ruling in Harrington v. Purdue Pharma L.P., 603 U.S. 204 (2024), held that the Bankruptcy Code does not permit nonconsensual, third-party releases under chapter 11 plans that do not pay creditors in full, Purdue dealt only with the lawfulness of nonconsensual third-party releases and related injunctions. It did not address the permissible scope of chapter 11 plan exculpation clauses limiting the liability of certain non-debtor entities for actions taken in connection with a bankruptcy case, or "gatekeeping" provisions requiring bankruptcy court approval before third parties may sue designated non-debtors for conduct arguably covered by a plan indemnity clause after a chapter 11 plan becomes effective.
In In re AIO US, Inc., No. 24-11836 (CTG), 2025 WL 2426380 (Bankr. D. Del. Aug. 21, 2025), stay pending appeal denied, 2025 WL 3036740 (Bankr. D. Del. Oct. 30, 2025) ("Avon"), the U.S. Bankruptcy Court for the District of Delaware addressed the validity of a gatekeeping provision in a chapter 11 plan. It ruled that the plan's gatekeeping provision, which barred any claim that "could be reasonably understood" to violate an exculpation provision in the plan and provided that any such claim could be asserted only if the bankruptcy court first found the claim to be "colorable" on the merits, was not authorized by the Bankruptcy Code and had to be removed from the plan.
Validity of Third-Party Releases, Exculpation Clauses, and Gatekeeping Provisions
Although different legal standards apply to a bankruptcy court's approval of third-party releases, exculpations, and gatekeeping provisions in chapter 11 plans, the analysis bankruptcy courts conduct in reviewing plan exculpations and gatekeeping provisions is best understood in the context of the law applicable to third-party releases, as discussed below. At the same time, practitioners should understand the differences between these three types of plan provisions.
Third-party releases commonly provide that, upon the effective date of the chapter 11 plan, certain designated non‑debtor "releasing parties" will fully and finally release certain designated "released parties" for any claims and causes of action arising prior to the plan effective date that broadly relate to the debtors, the debtors' prepetition business relationships, and the bankruptcy case.
Plan exculpation clauses generally benefit a narrower subset of non-debtor parties and are intended to limit the liability of estate fiduciaries, their agents, and, sometimes, certain other parties, for actions taken in the chapter 11 case.
While third-party releases and plan exculpations, in some form, are included in the vast majority of chapter 11 plans proposed in complex cases, gatekeeping provisions are less ubiquitous, although they have become more common in recent years. Gatekeeping provisions generally are intended to provide an additional layer of protection to exculpated parties by requiring a plaintiff to first obtain authorization from the bankruptcy court—often, by showing that its claims are "colorable"—before suing an exculpated party in another forum for actions that arguably were exculpated under the plan.
Section 524(e) of the Bankruptcy Code provides that, "[e]xcept as provided in subsection (a)(3) of this section [making the discharge injunction applicable to actions to collect against community property], discharge of a debt of the debtor does not affect the liability of any other entity on, or the property of any other entity for, such debt." 11 U.S.C. § 524(e). Notwithstanding this statutory pronouncement, third-party releases and non-debtor exculpations have long been a common feature of chapter 11 plans, particularly in complex cases.
Although it is generally accepted that a chapter 11 plan can release non-debtors from claims of other non-debtors if the release is consensual, prior to 2024, a circuit split existed regarding whether bankruptcy courts have authority to approve nonconsensual third-party releases in chapter 11 plans. In Purdue, the U.S. Supreme Court answered that question with an emphatic "no." The Court ruled that no provision in the Bankruptcy Code other than section 524(g) (providing for the creation of a trust for the payment of asbestos personal injury claims) authorizes a chapter 11 plan to release the claims of nonconsenting creditors against non-debtor entities, at least insofar as the releasing creditors' claims are impaired under the plan. Purdue, 603 U.S. at 222.
In so ruling, the majority reasoned that:
The "catchall" provision in section 1123(b)(6) of the Bankruptcy Code stating that a chapter 11 plan "may" also "include any other appropriate provision not inconsistent with the applicable provisions of this title" must be construed narrowly in light of its surrounding context and read to "embrace only objects similar in nature" to the specific examples preceding it, all of which deal with the relationship between a debtor and its creditors, rather than the "radically different" power to discharge the debts of a non-debtor without the consent of affected creditors;
The proponents of a chapter 11 plan cannot evade the Bankruptcy Code's general limitation that a discharge applies only to debtors who place "substantially all of their assets on the table" and its exclusion from discharge of debts based on "fraud" or those alleging "willful and malicious injury" simply "by rebranding the discharge a 'release'"; and
If lawmakers had intended "to reshape traditional practice so profoundly" in the Bankruptcy Code, compared to its predecessor statutes, by "extending to courts the capacious new power the plan proponents claim, one might have expected them to say so expressly somewhere" in the Bankruptcy Code itself.
The majority emphasized that nothing in its ruling should be construed to call into question consensual releases in a bankruptcy reorganization plan, and further declined to express a view on what qualifies as a consensual release, observing that those sorts of releases pose different questions and may rest on different legal grounds. Id. at 226–27. Similarly, the majority declined to pass upon a plan that provides for full satisfaction of claims against a releasing non-debtor. Id. The majority also expressly cabined its ruling to the situation before it, noting that "we hold only that the [B]ankruptcy [C]ode does not authorize a release and injunction that, as part of a plan of reorganization under Chapter 11, effectively seeks to discharge claims against a nondebtor without the consent of affected claimants." Id. at 206.
Purdue, however, did not address the validity of chapter 11 plan exculpation or gatekeeping provisions, which similarly release, enjoin, or condition the prosecution of certain claims against non-debtors.
Exculpation clauses frequently are described as specifying the scope of, or the standard of care (e.g., ordinary negligence, gross negligence, or willful misconduct) governing, an exculpated party's liability for conduct during the course of the bankruptcy case. See, e.g., In re Aegean Marine Petroleum Network Inc., 599 B.R. 717, 721 (Bankr. S.D.N.Y. 2019) (noting that "an appropriate exculpation provision should say that it bars claims against the exculpated parties based on the negotiation, execution, and implementation of agreements and transactions that were approved by the Court"); In re Murray Metallurgical Coal Holdings, LLC, 623 B.R. 444, 501 (Bankr. S.D. Ohio 2021); see also Blixseth v. Credit Suisse, 961 F.3d 1074, 1084 (9th Cir. 2020) (distinguishing releases and exculpation clauses).
Such provisions commonly insulate estate fiduciaries, including officers, directors, and employees of the debtors and the reorganized debtors, as well as advisors and professionals retained by the estate, official committees and their members from most claims arising from their official conduct during the chapter 11 case. See, e.g., In re PWS Holding Corp., 228 F.3d 224, 246 (3d Cir. 2000); In re LATAM Airlines Grp. S.A., No. 20-11254 (JLG), 2022 WL 2206829, at *50 (Bankr. S.D.N.Y. June 18, 2022); Aegean Marine Petroleum, 599 B.R. at 720.
As noted above, a gatekeeping provision in a chapter 11 plan is an injunction barring litigation against critical plan participants without the bankruptcy court's approval after the court determines that the proposed litigants have a "colorable" claim that the bankruptcy court or some other court with jurisdiction can adjudicate. Such provisions are an outgrowth of the "Barton doctrine."
Named for the decision in Barton v. Barbour, 104 U.S. 126 (1881), the Barton doctrine requires that "leave of the appointing forum must be obtained by any party wishing to institute an action in a non-appointing forum against a trustee for the acts done in the trustee's official capacity and within the trustee's authority as an officer of the court." ACE Insurance Co., Ltd. v. Smith (In re BCE West, L.P.), No. 06-0325-PHX-JAT, 2006 WL 8422206, at *2 (D. Ariz. Sept. 20, 2006) (quoting In re DeLorean Motor Co., 991 F.2d 1236, 1240 (6th Cir. 1993)); accord Villegas v. Schmidt, 788 F.3d 156, 159 (5th Cir. 2015) (under the Barton doctrine, the bankruptcy court may require a party to "obtain leave of the bankruptcy court before initiating an action in district court when the action is against the trustee or other bankruptcy-court-appointed officer, for acts done in the actor's official capacity"); In re Christensen, 598 B.R. 658, 665 (Bankr. D. Utah 2019) ("Barton is strictly a 'jurisdictional gatekeeping doctrine,' and it strips all courts—except the bankruptcy court that appointed the trustee—of subject-matter jurisdiction to hear a lawsuit against the trustee unless the appointing court gives its permission to sue the trustee elsewhere.") (footnotes and citations omitted).
Some courts have broadened the scope of the Barton doctrine to include a variety of court-appointed fiduciaries and their agents. See Lawrence v. Goldberg, 573 F.3d 1265, 1270 (11th Cir. 2009) (applying the Barton doctrine to the trustee's lawyers and creditors who "functioned as the equivalent of court appointed officers"); In re Circuit City Stores, Inc., 557 B.R. 443, 447 (Bankr. E.D. Va. 2016) (observing that the Barton doctrine has long applied to other types of court-appointed parties in bankruptcy, including liquidating trusts, trustees, and counsel for trustees, with the purpose being to "prevent trustees from being subject to legal proceedings that interfere with their ability to administer the estate").
Against this backdrop, the U.S. Court of Appeals for the Fifth Circuit addressed both the scope of permissible plan exculpations, and the validity of gatekeeping provisions, in a pair of recent rulings in the same chapter 11 case. In NexPoint Advisors L.P. v. Highland Capital Mgmt., L.P. (In re Highland Capital Mgmt., L.P.), 48 F.4th 419 (5th Cir. 2022) ("Highland I"), cert. denied, 144 S. Ct. 2714 (2024), and cert. denied, 144 S. Ct. 2715 (2024), the bankruptcy court entered an order confirming the chapter 11 plan of several related investment companies. Id. at 427–28. To protect estate fiduciaries and various other parties involved in the chapter 11 case from anticipated lawsuits by the debtors' "litigious" cofounder, the debtors included in the plan an exculpation provision covering an unusually broad scope of chapter 11 participants. Id. at 427. Exculpated parties included, among others, certain executives and independent directors of the debtors, the creditors' committee, all professionals retained in the case, and numerous categories of "Related Persons" of the foregoing parties. Id.
The plan also contained a gatekeeping provision that required plaintiffs to obtain bankruptcy court authorization prior to suing various "protected parties" for conduct related to the bankruptcy, by demonstrating that any such claims are "colorable." Id. at 435. The bankruptcy court overruled various objections to the scope of the plan exculpation and the lawfulness of the gatekeeping provision. Id. at 428. Following confirmation of the plan, certain objecting parties were granted leave to appeal directly to the Fifth Circuit. Id.
The Fifth Circuit reversed the Highland I confirmation order and held that, while bankruptcy courts do have authority to approve chapter 11 plans exculpating non-debtor third parties, the plan's definition of "Exculpated Parties" was impermissibly broad under section 524(e) of the Bankruptcy Code. Id. at 437–38. Specifically, the court ruled that the exculpation provision could extend only to the debtor and related entities, the unsecured creditors' committee and its members, and the debtor's independent directors "for conduct within the scope of their duties." Id. at 438.
The Fifth Circuit further ruled that the plan's gatekeeping provision was permissible, but did not directly address whether the scope of non-debtor parties protected by the gatekeeping provision must be limited so as to be co-extensive with the limited scope of parties the court held were entitled to exculpation. See id. at 438–39.
On remand, the bankruptcy court granted the debtor's motion to alter the exculpation provision in its chapter 11 plan in accordance with the Fifth Circuit's decision in Highland I by limiting the scope of the provision to the debtor, the independent directors, the committee, the committee members, and certain "Related Persons" of these parties. In re Highland Capital Mgmt., L.P., No. 19-34054-SGJ11, 2023 WL 2250145, at *8 (Bankr. N.D. Tex. Feb. 27, 2023). In doing so, it overruled an objection by the appellants arguing that the changes to the plan in the definition of "exculpated parties" should also be made to the definition of "protected parties" shielded by the gatekeeper clause. Id. Following the bankruptcy court's ruling, the Fifth Circuit granted the appellants leave to file a direct appeal of the bankruptcy court's remand order.
In NexPoint Asset Mgmt., L.P. v. Highland Capital Mgmt., L.P. (In re Highland Capital Mgmt., L.P.), 132 F.4th 353 (5th Cir. 2025) ("Highland II"), cert. denied and stay vacated, 2025 WL 1621149 (June 9, 2025), petition for cert. filed sub nom. Highland Capital Management LP, Petitioner v. NexPoint Advisors LP, No. 25-119 (U.S. July 28, 2025), the Fifth Circuit reversed the bankruptcy court's order on remand from Highland I, and ruled that the bankruptcy court should have narrowed the definition of "protected parties" covered by the plan's gatekeeping provision to be co-extensive with the limited scope of parties protected by the plan's exculpation clause. Id. at 358. The Fifth Circuit explained that, although bankruptcy courts have some power to act as gatekeepers to litigation in accordance with the Barton doctrine—even if they would not have jurisdiction to adjudicate such claims or if the bankruptcy case has concluded—"they nonetheless do not have unrestricted power to protect non-debtors from liability via a pre-filing injunction." Id. at 359. According to the court, gatekeeping prevents usurpation of the powers of the bankruptcy court that would prevent the court from distributing bankruptcy estate assets in accordance with statutory priorities, and protects a bankruptcy trustee from unjustified personal liability for actions taken in the trustee's official capacity. Id.
However, the court emphasized that the Fifth Circuit has "never extended the Barton doctrine to give bankruptcy courts gatekeeping power over claims against non-debtors." Id. Gatekeeping, the Fifth Circuit explained, "is patently beyond the power of an Article I court under § 105 [of the Bankruptcy Code]" if it shields anyone other than the debtor, independent directors, the creditors' committee, and committee members for conduct within the scope of their duties. Id. at 362.
On July 28, 2025, the appellants filed a petition asking the Supreme Court to review the Fifth Circuit's ruling, arguing that the decision narrowing the gatekeeping provision "has put at risk the ability of entities in contentious reorganization proceedings to attract qualified professionals to assist them." See Highland Capital Management LP, Petitioner v. NexPoint Advisors LP, No. 25-119 (U.S. July 28, 2025).
On August 29, 2025, the bankruptcy court entered an order amending the debtor's chapter 11 plan to conform to the Fifth Circuit's ruling.
On October 14, 2025, the Supreme Court invited the U.S. Solicitor General to submit a brief responding to the appellants' certiorari petition.
Avon
Former cosmetics giant Avon Products, Inc. and various of its affiliates (collectively, the "debtors") filed for chapter 11 protection in 2024 in the District of Delaware to deal with hundreds of personal injury claims asserted by plaintiffs alleging that their diseases were caused by exposure to the debtors' talc-containing cosmetic products. Avon, 2025 WL 2426380, at *2. Although the debtors once owned the iconic Avon cosmetics brand, they spun off their U.S. assets in a 2016 transaction. Id. After filing for chapter 11, the debtors also sold their foreign operations to their Brazilian parent company, Natura & Co Holding S.A. ("Natura"). Id. Natura was the debtors' prepetition secured lender and provided $43 million in debtor-in-possession financing to the debtors to finance their bankruptcy cases. Id. at *4. Following the sale and resolution of various estate claims that the debtors held against Natura by means of a global settlement, the debtors' remaining assets consisted only of the sale proceeds, insurance assets, and certain causes of action. Id. at *5.
The debtors proposed a liquidating chapter 11 plan in February 2025. Id. The plan provided that all of the debtors' assets would be vested in a liquidation trust, and the liquidation trustee would administer, resolve, liquidate, and pay all claims against the debtors in accordance with the plan. Id.
The plan included what the bankruptcy court characterized as "standard debtor-releases," along with an exculpation provision, an injunction, and a gatekeeping provision. Avon, 2025 WL 2426380, at *8. The gatekeeping provision stated as follows:
No Person may commence or pursue a Cause of Action of any kind against the Debtors, the Liquidating Debtors, the Exculpated Parties, or the Released Parties that could reasonably be characterized as a Cause of Action that will be or is extinguished, exculpated, or released by the Plan or otherwise will be or is subject to the Plan without the Bankruptcy Court first determining, after notice and a hearing, that such Cause of Action (a) represents a colorable claim against a Debtor, Liquidating Debtor, Exculpated Party, or Released Party and (b) has not been extinguished, exculpated, or released by the Plan or otherwise will be or is subject to the Plan.
Id. at *37. The Office of the U.S. Trustee objected to confirmation of the plan, arguing that the gatekeeping provision was impermissible, and that the plan was unconfirmable because the proposed payment of a bond trustee's fees and expenses circumvented the requirements of section 503(b) of the Bankruptcy Code and resulted in disparate treatment of creditors. Id. at *3. Certain of the debtors' insurers also objected to confirmation on various grounds, including that the plan was not proposed in good faith, did not have enough accepting votes for confirmation, and improperly attempted to alter insurers' rights by "allowing" talc claims and binding insurers to the trust's claim valuations. Id. at **2–3. Certain insurers also claimed that their insurance policies were executory contracts that could not be assigned to the liquidating trust unless the trust also assumed the debtors' obligations under such policies. Id. at *18.
The Bankruptcy Court's Ruling
The bankruptcy court ruled that the debtors' chapter 11 plan was confirmable, with certain modifications. Among them was removal of the gatekeeping provision.
U.S. Bankruptcy Judge Craig T. Goldblatt characterized as "controversial" the type of gatekeeping provision in the debtors' plan, which "enjoins not only the assertion of claims that are released or exculpated under the plan, but also prohibits the assertion of claims that live in the same neighborhood as claims that are released or exculpated under the plan (here, a claim that 'could reasonably be characterized' as a released or exculpated claim)." Avon, 2025 WL 2426380, at *37.
According to Judge Goldblatt, "even as narrowed" by the Fifth Circuit in Highland II to extend only to estate fiduciaries and to cover only acts taken in their fiduciary capacity, there is no authority for a bankruptcy court to act as a gatekeeper by enjoining claims against non-estate fiduciaries (i.e., claims and causes of action that may be asserted against parties other than those entitled to exculpations under the plan) without bankruptcy court permission. Id. at *38. The bankruptcy court acknowledged that, under settled law, estate fiduciaries can be exculpated from liability for claims arising from the exercise of their fiduciary duties, and it is both "customary and unobjectionable to back that exculpation by an injunction against the assertion of an exculpated claim." Id. (citing In re PWS Holding, 228 F.3d at 246; Blixseth, 961 F.3d at 1081–1085)). However, regarding the gatekeeping provision here, Judge Goldblatt wrote:
The Court does not understand the authority … for extending the injunction past the scope of the exculpation and other appropriate releases of estate claims themselves, to apply to claims that "could reasonably be characterized" as such a claim. More puzzling still, the "gatekeeping" injunction arrogates to this Court not only the authority to determine whether such a claim falls within the plan's injunction but also requires a finding by this Court that the underlying claim (over which the Court may or may not have subject-matter jurisdiction) is a "colorable" claim on the merits.
Id.
Contrary to Highland II and other similar decisions, the bankruptcy court in Avon concluded that neither the Bankruptcy Code nor the Barton doctrine "provides any substantive authority for the bankruptcy court to do anything like this." Avon, 2025 WL 2426380, at *38. According to Judge Goldblatt, in the confirmation hearing transcript of another Delaware bankruptcy case—In re Gulf Coast Health Care, LLC, No. 21-11336 (KBO) (Bankr. D. Del.)—the court rejected the debtor's request "that [the court] retain sole and exclusive authority to determine whether a claim or cause of action against a released party arises from or is related to a debtor-released claim or a third party released claim and, in doing so, authorize such party to bring the claim against the relevant release[d] party." Id. (quoting Gulf Coast Hr'g Tr. of May 4, 2022, at p. 30). In so ruling, Judge Goldblatt explained that the Gulf Coast court saw no reason to retain exclusive jurisdiction and determined that other courts should be entitled to exercise their authority to interpret the terms of the confirmed chapter 11 plan. Id.
Interestingly, in arguing in favor of the gatekeeping provision, the debtors pointed out that, earlier in the Avon case, the bankruptcy court had approved a gatekeeping provision as part of the debtors' global settlement with Natura. Id. That prior settlement order provided that "no Person or Entity may commence or pursue a Cause of Action of any kind against the debtors or Natura Releasees, as applicable, that could reasonably be characterized as a Cause of Action subject to Section 4 of the Settlement Agreement or the releases provided in this Order without the Court first determining, after notice and a hearing, that such Cause of Action is not released by Section 4 of the Settlement Agreement." Id. at *39.
Judge Goldblatt acknowledged his approval of the prior gatekeeping provision but emphasized that it was "meaningfully narrower" than the gatekeeping provision in the debtors' chapter 11 plan. Id. Specifically, he wrote in the confirmation opinion that, whereas the settlement order confined the scope of the gatekeeping provision to determining whether a claim was barred by the settlement, "[t]he proposed confirmation order takes an aggressive step beyond that and would require the Court to make a finding that the underlying claim was 'colorable' on the merits before it may proceed." Id.
Moreover, Judge Goldblatt noted, his decision in connection with the settlement order "was undoubtedly motivated by the substantial ambiguity raised by the vexing question of determining what type of claim is an 'estate' claim that is resolved when the debtor grants a release, as opposed to those claims that are held and may be asserted against third parties by individual creditors." Id. As such, the bankruptcy court concluded, its decision to retain jurisdiction over disputes arising from the settlement agreement "may well be explained by the Court's concern about imposing on another court the burden of having to make sense of the sometimes ambiguous effect of this Court's settlement order." Id.
Deeming the Gulf Coast rationale more compelling, the bankruptcy court in Avon emphasized that it would retain jurisdiction to resolve any disputes regarding the meaning of its plan confirmation order, and would be inclined to address by means of a declaratory judgment disputes over whether a claim asserted in another court was actually enjoined under the plan confirmation order. Id. However, the court concluded, it would not enter an injunction in the form of a gatekeeping provision precluding another court from resolving a dispute over the meaning of the plan confirmation order. Id. Thus, "[w]ith the benefit of hindsight," the bankruptcy court determined that approval of the gatekeeping provision was not authorized by law and should be removed from the debtors' chapter 11 plan. Id. On September 24, 2025, the bankruptcy court entered an order confirming the debtors' chapter 11 plan, as amended in accordance with the court's August 21, 2025, ruling. See In re AIO US, Inc., No. 24-11836 (CTG) (Bankr. D. Del. Sep. 24, 2025) (D.I. 1550).
Outlook
On October 30, 2025, the bankruptcy court denied certain insurers' motion for a stay pending appeal of its decision, finding that the movants, having failed to seek a stay before the debtors' chapter 11 plan became effective, had not demonstrated irreparable injury.
Avon appears to be the first written decision by a Third Circuit court providing an in-depth analysis of the permissibility of a plan gatekeeping provision. As such, it remains uncertain whether other courts, both within the Third Circuit and elsewhere, will follow its approach. In the meantime, the Supreme Court could potentially grant certiorari to hear the Highland debtors' appeal of Highland II, in which the Fifth Circuit affirmed the permissibility of gatekeeping provisions but only for the benefit of estate fiduciaries. More on that case to come.
