Terraform Bankruptcy Protections Draw Justice Department Rebuke

Terraform Labs Pte.'s liquidation plan contains expansive liability protections that exceed the limits of bankruptcy law, the Justice Department’s bankruptcy watchdog said.

Under Third Circuit precedent, parties that receive liability releases need to make a substantial contribution to the debtor’s bankruptcy plan, the US Trustee said. But Terraform’s plan releases people in positions that won’t even exist until after its bankruptcy plan becomes effective, including a plan administrator and a wind down trustee.

Unless the US Bankruptcy Court for the District of Delaware determines those parties made a substantial contribution, the proposed releases can’t be approved as part of the ...