Gol Bankruptcy Ruling Narrows Gap Over Liability Shield Consent

A federal judge’s decision to overturn a Brazilian airline’s litigation releases for nonbankrupt entities in its reorganization plan breaks from a popular finding among courts that a creditor’s silence means consent to the releases.

Judge Denise Cote of the US District Court for the Southern District of New York’s Dec. 1 ruling on the validity of liability shields for third parties in Gol Linhas Aéreas Inteligentes SA’s Chapter 11 plan adds to a growing minority of how to interpret the Supreme Court’s Harrington v. Purdue Pharma LP decision last year, using contract-law standards for consent.

While courts continue to debate what constitutes consent under the high court ruling, most accept “opt-outs” as sufficient—treating a creditor who submits a ballot rejecting the plan but fails to check a box opting out of the releases as having consented. A minority of decisions like Cote’s, notably in the Delaware and the Southern District of New York bankruptcy courts, have taken a more conservative view of third-party releases or held that consent can’t be inferred from inaction.

“You had a really clear trend toward opt-outs, with very few recent exceptions, so this is a speed bump,” said Robert J. Keach, senior counsel at Verrill Dana LLP. “A lot of people were comfortably settling into that, so this is a bit of a shot across the bow, but it’s too early to make that conclusion.”

Gol filed for Chapter 11 bankruptcy in January 2024 with around $4.1 billion in debt. Its bankruptcy exit plan, which recapitalized the domestic low-cost airline and updated its fleet, included provisions establishing that creditors would release all related claims against the company unless they affirmatively opted out from doing so.

Cote found that Gol’s plan didn’t give creditors a real chance to opt out of the releases. She concluded that consent can’t be implied from silence under state or federal law, and she rejected the application of consent procedures from class actions.

Courts have broadly accepted opt-outs post-Purdue, so Cote’s decision could slow that trend, said Mark Roe, a Harvard Law School professor.

“It’s not a Court of Appeals decision, which would be more influential,” Roe said in an email. “But it’s a well-crafted, clearly-argued decision from a district court.”

Michelle McGreal, a Clifford Chance partner specializing in airlines, said Cote’s decision is significant because the Southern District of New York is a popular venue for large Chapter 11 cases. Companies could choose to instead file in New Jersey or Texas, where the opt-out strategy is permitted, she said.

“We’re still in the really early stages of this with one district court decision and no circuit split on the issue,” McGreal said. Some courts could take a “hybrid approach,” with opt-ins and opt-outs depending on the type of creditor.

Defining Consent

The reversal of the plan’s releases approved in May came after the Justice Department’s bankruptcy monitor, the US Trustee, challenged them.

Cote’s ruling only struck releases without undoing the whole plan, though that could make certain agreements tricky, McGreal noted.

“If there are parts of the plan that are contingent on those releases being given—for example, if there are financiers who say, ‘I’ll only provide this financing if the releases are upheld as valid'—then conditions like that could be affected,” she said.

When it approved the airline’s plan, the bankruptcy court interpreted the Purdue ruling to bar nonconsensual third-party releases while leaving the door open for consensual ones. The court also concluded that federal, not state law, applies to determine whether a third-party release was consensual.

However, Cote found that, like previous opinions taking the minority view, a debtor must consider the rules of general contract law.

Under private contract law, “you can’t get consent simply from someone’s failure to respond to an offer,” said Anthony J. Casey, a professor at the University of Chicago Law School.

Gol said in a statement that Cote’s decision doesn’t affect its emergence from Chapter 11. The airline indicated that it’s considering an appeal.

The Gol ruling offers little clarity given the existing split among courts. True guidance, Casey said, will have to come from binding decisions from the courts of appeals or the Supreme Court.

“Until then, the lower courts will just have to choose from the many available approaches,” he said.

Competing Theories

Two theories underpin the debate: the “default theory,” where silence can imply consent, and the “contract theory,” which requires explicit, affirmative written consent.

Courts opposing opt-outs often have “healthy skepticism” about whether silence truly means consent, Keach said. The issue can become more complicated depending on whether debtors seek releases from sophisticated parties in a financial restructuring or from tort claimants who lack legal representation.

“If you’re regular person, not represented by counsel, and you get a 200-page disclosure statement, and a complicated ballot with a set of procedures, and you may just decide not bother,” he said.

Cote’s opinion, Roe added, also raises questions over whether consent is determined by federal bankruptcy law or state contract law.

State contract law, based on the opinion, is tough on finding an opt-out opportunity to mean consent, he said.

US Trustee’s Push

Since its Supreme Court win in Purdue, the US Trustee’s office has taken a firmer stance against releases in cases across the country, though many of its objections have been overruled or resolved through negotiated language changes.

The office has also opposed releases in Chapter 15 cases, arguing that Purdue applies to cross-border restructurings, but bankruptcy courts have so far rejected that position.

The US Trustee declined to comment.

Keach said that while the office presses its position against opt-outs, it will occasionally find judges who agree with it.

“I’m very skeptical that the Supreme Court is going to revisit this issue again anytime soon,” he said. “But I do expect you’ll see this issue get to some circuits.”