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Third Circuit Protects Lenders by Limiting Substantive Consolidation

August 23, 2005

By Jesse H. Austin, Hydee R. Feldstein, Leslie A. Plaskon and Stephen L. Sepinuck

In a favorable decision for lenders, the United States Court of Appeals for the Third Circuit severely restricted the availability of substantive consolidation in bankruptcy cases. The August 15th decision in the case of In re Owens Corning makes it clear that consolidation is not appropriate over the objection of a creditor that relied on the separateness of corporate entities in entering into loan transactions with the respective companies.