In Harrington v. Purdue Pharma L.P., the Supreme Court issued its landmark ruling holding that “the bankruptcy code 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.” 603 U.S. 204, 227 (2024). Since its ruling, bankruptcy courts have had to grapple with questions left unanswered by the Supreme Court’s ruling. In this post, we examine one of those unanswered questions: whether as part of a plan of reorganization under subchapter V, the court may issue an injunction protecting a non-debtor for the life of the plan.

Second Circuit Case Law on Extending the Stay to Non-Debtors

The Second Circuit has held that in limited circumstances the automatic stay may be extended to non-debtors “when a claim against the non-debtor will have an immediate adverse economic consequence for the debtor’s estate.” Queenie, Ltd. v. Nygard Int’l, 321 F.3d 282, 287 (2d Cir. 2003). This includes situations where “there is such identity between the debtor and the third-party defendant that the debtor may be said to be the real party defendant.” Id. at 288 (quoting A.H. Robins Co. v. Piccinin, 788 F.2d 994, 999 (4th Cir. 1986)).

In re Hal Luftig Co.

In In re Hal Luftig Co., Hal Luftig Company, Inc. (the “Debtor”) was a theatrical production company that developed, acquired, and promoted theatrical plays, musicals, and similar works. No. 25-CV-02580 (MMG), 2026 WL 2935950, at *1 (S.D.N.Y. Sept. 30, 2026). Hal Luftig (“Mr. Luftig”) was the president and sole shareholder of the Debtor. A former business partner of the Debtor (the “Creditor”) obtained a $2.6 million arbitration award, later confirmed and reduced to judgment, against the Debtor and Mr. Luftig jointly and severally. At the outset of the case, the Debtor obtained an extension of the automatic stay to Mr. Luftig, arguing that the Debtor derived profits from shows produced by Mr. Luftig and his ability to produce these shows would be frustrated if he had to deal with enforcement actions from the Creditor. After the district court declined to adopt the bankruptcy court’s proposed findings and denied confirmation of an initial plan containing a non-debtor third party release, In re Hal Luftig Co., 657 B.R. 704 (S.D.N.Y. 2024), the Debtor proposed a plan that continued the automatic stay protecting Mr. Luftig for the life of the five-year plan. The bankruptcy court confirmed the plan, finding that the extension of the automatic stay was necessary to facilitate an effective reorganization. In re Hal Luftig Co., 667 B.R. 638, 659–62 (Bankr. S.D.N.Y. 2025).

On appeal, a principal argument raised by the Creditor was that an extension of the stay for the life of the plan was impermissible under Purdue Pharma because it effectively operated as a discharge of a non-debtor third party for the life of the plan.

Here the district court carefully distinguished the difference between the relief being requested and the discharge in Purdue Pharma, providing that “[t]he discharge at issue in Harrington was a permanent extinguishing of non-debtor liabilities without the consent of the affected creditors, and without subjecting the released parties to the bankruptcy process. A time-limited pause on enforcement or collection actions, through an automatic stay extension, is fundamentally different, and much closer to the ordinary and commonplace powers afforded to bankruptcy courts to effectuate debtor reorganizations.” In re Hal Luftig Co., 2026 WL 2935950, at *4 (citation omitted). Accordingly, the district court affirmed the bankruptcy court’s order confirming the plan. However, the court cautioned that its decision was confined to the facts and record of the case, and that a stay over a plan of substantially longer duration, or under different facts, might amount to “the functional equivalent of an impermissible discharge of a non-debtor.” Id. at *5.

Takeaways

Read alongside Judge McMahon’s observation on the Purdue remand that Harrington “left unchanged” a bankruptcy court’s power to temporarily enjoin litigation against third parties whose assets or claims could affect the estate, In re Purdue Pharma L.P., No. 24-Civ-7042, 2024 WL 4894349, at *7 (S.D.N.Y. Nov. 26, 2024), and Judge Glenn’s confirmation of a Subchapter V plan with a five-year principal injunction over the U.S. Trustee’s objection, In re Fortuna Auction LLC, No. 25-10632 (MG), 2025 WL 3726083, at *18 (Bankr. S.D.N.Y. Dec. 19, 2025), Hal Luftig confirms that the post-Harrington tool for protecting a principal is a section 105 injunction supported by findings, not a plan release.

For Subchapter V debtors whose principal shares joint-and-several liability with the company: debtors should file the stay-extension adversary on the petition date, build the record on why the principal is operationally indispensable, and carry the injunction into the plan by its terms rather than asking for anything that resembles a release.