Introduction

In recent years, New Jersey has emerged as a significant forum in corporate restructuring, with the United States Bankruptcy Court for the District of New Jersey handling a growing number of high-profile Chapter 11 filings. This shift has important implications for venue strategy, corporate reorganisation and legal precedent. Equally consequential are landmark decisions from the Third Circuit that affect doctrines such as good faith filing, examiner appointment, comity under Chapter 15, and set-off disputes. This chapter of the guide surveys these recent trends and highlights how legal professionals in the region should adapt.

New Jersey as a Rising Chapter 11 Venue

For many years, large New Jersey-based companies often chose alternative venues (most prominently the United States Bankruptcy Court for the District of Delaware) for their Chapter 11 cases. However, in the last few years that has changed markedly. A pivotal moment came when Johnson & Johnson’s LTL Management case was transferred from North Carolina to New Jersey in late 2021, dramatically raising the profile of the District of New Jersey under then-Chief Judge Michael Kaplan’s stewardship. Since then, significant restructurings – including those of LTL Management II, Bed Bath & Beyond, Careismatic, David’s Bridal, Rite Aid, WeWork, BlockFi, Whittaker, Clark & Daniels, Invitae, BowFlex, Powinand Del Monte Foods – have filed in New Jersey, marking a surge in filings that places the state among the most popular venues for mega Chapter 11 cases, along with Delaware and the Southern District of Texas.

Troubled companies and their financial and legal professionals are drawn to several key benefits New Jersey offers, including its proximity to Manhattan, a stable and well-respected bench of bankruptcy judges, and predictable outcomes (New Jersey and Delaware are both Third Circuit jurisdictions). In addition, Judge Kaplan has emphasised fairness: judges are assigned based on vicinages, and no centralised “complex case assignment” system is employed. While some local entities like CarePoint Health have recently opted for Delaware, New Jersey continues to attract numerous large corporate debtors.

The spike in Chapter 11 filings in New Jersey mirrors national trends. Elevated interest rates, inflation and diminished post-pandemic liquidity have pushed multiple sectors – particularly retail, healthcare, real estate and energy – into distress. Nationally, 2024 saw near-record filing volumes, and PwC forecasted the elevated pace continuing into mid 2025, which was borne out (see “Restructuring 2025 Outlook” at PWC.com).

Key Third Circuit Developments on Chapter 11 Issues

As noted above, debtors have been drawn to New Jersey as a Chapter 11 venue in no small part because it provides an alternative venue to Delaware, but still within the Third Circuit. Notably, the Third Circuit has released several important recent bankruptcy decisions, including on good faith filings (LTL), the appointment of examiners (FTX), Chapter 15 comity (Vertiv), and direct versus derivative claims (Whittaker Daniels). Each decision is discussed below in detail.

Good faith and the “Texas Two-Step”: In re LTL Management (Third Circuit, 2024)

At the forefront of New Jersey’s venue ascendance was the LTL saga. The Third Circuit dismissed LTL’s two Chapter 11 filings, ruling that the filing lacked good faith and a valid bankruptcy purpose because the debtor was not in financial distress.

• In re LTL Management, LLC, 64 F.4th 84 (3d Cir. 2023) (LTL 1.0): LTL had a USD61.5 billion funding agreement (exceeding liability estimations). The court determined that insolvency was not required to satisfy the good faith standard, but “apparent distress” was required.
• In re LTL Management, LLC, 2024 U.S. App. LEXIX 18437 (3d Cir. 25 July 2023) (LTL 2.0): The refiling (with about USD30 billion funding) also failed because LTL’s assets exceeded its liabilities, so the court found good faith was absent.
• The Section 1112(b)(2) “unusual circumstances” exception did not apply because of the absence of financial distress.

LTL 1.0 and LTL 2.0 demonstrate the Third Circuit’s scepticism towards strategic bankruptcy filings that function as liability shields rather than genuine restructurings. The LTL doctrine diverges from the Fourth Circuit’s more permissive approach (eg, In re Bestwall), setting up a potentially significant circuit split.

Legal standard: good faith under Section 1112(b)

The long-standing rule in the Third Circuit is that a Chapter 11 petition may be dismissed for cause under Section 1112(b) if not filed in good faith. Though Section 1112(b) does not enumerate “bad faith” as a cause for dismissal, case law imputes a good-faith requirement to bankruptcy filings grounded in the equitable nature of bankruptcy and Chapter 11’s underlying purposes. A filing motivated by tactical litigation advantage or lacking a valid bankruptcy objective gives rise to a presumption of “cause” for the dismissal of the petition(LTL 1.0, 64 F.4th at 100–01). To rebut that presumption, the debtor bears the burden of proving good faith by a preponderance of the evidence, and appellate review distinguishes between clearly erroneous findings of fact and de novo review of legal conclusions – good faith being an “ultimate fact”. Questions of financial distress are similarly subject to fresh review on appeal (ibid at 100).

Financial distress as a threshold

The Third Circuit strongly signalled that a debtor must demonstrate “some degree of financial distress” to establish good faith. Without that, there’s no valid bankruptcy purpose – whether to preserve a going concern or maximise estate value (ibid at 101). Precedents like Integrated Telecom and SGL Carbon underscore this requirement for a good faith bankruptcy filing. In other words, solvent entities may not invoke Chapter 11, in Third Circuit jurisdictions or jurisdictions following Third Circuit precedent on the issue, to gain litigation leverage or reduce costs, particularly absent a business-threatening crisis (ibid at 101–02).

LTL Management: divisional merger + funding agreement

LTL Management was created via a Texas divisive merger, whereby talc-related liabilities of Johnson & Johnson affiliates were transferred to LTL. LTL was to have been supported by a funding agreement backed by Johnson & Johnson and New Consumer, promising up to USD61.5 billion, which contained minimal conditions and no repayment obligations (ibid at 96–97). The Third Circuit held that such robust backstops effectively obviated any financial distress, thereby eliminating a core predicate for Chapter 11 good faith. The motives behind the petition – asset shielding and liability management rather than restructuring – were insufficient to demonstrate good faith. Good intentions (eg, brand protection, global liability resolution) cannot substitute for financial distress. Crucially, the court also emphasised that only LTL’s financial condition itself matters – even if upstream affiliates were troubled, LTL’s settlement-like backing by strong sponsors undercut any independent need for bankruptcy (ibid at 105–06).

Circuit split and strategic implications

By contrast, the Fourth Circuit in Bestwall rejected a mandatory distress requirement. There, a Texas Two-Step debtor backed by affiliate funding could proceed absent subjective bad faith plus futility of reorganisation. (SeeBlair v Bestwall, LLC (In re Bestwall, LLC), 99 F.4th 679 (4th Cir. 2024).) This divergence sets up a circuit split: savvy practitioners planning Texas Two-Step restructurings must assess whether the Third Circuit’s clear requirement of distress will thwart a prospective restructuring or whether alternative tactics (restructuring before transfer, demonstrating real liquidity pressure) could survive scrutiny.

Mandatory appointment of examiners: In re FTX Trading Ltd (Third Circuit, 2024)

In a landmark decision, the Third Circuit held that Section 1104(c)(2) mandates the appointment of an examiner when a party-in-interest or the US Trustee moves for one, and unsecured debts exceed USD5 million. The circuit court wrote that Section 1104’s language – “shall” – is mandatory, not discretionary. (See In re FTX Trading Ltd, 83 F.4th 212 (3d Cir. 2024).) For creditors’ attorneys, the message is clear: in most debtor cases, you must consider whether to seek an examiner, especially where asset transparency is lacking or internal control concerns exist.

Statutory language: “shall” means mandatory

Under Section 1104(c)(2), if unsecured fixed, liquidated debts exceed USD5 million and there is a motion by a party-in-interest or US Trustee – and no trustee has been appointed – the statute states the court “shall order” the appointment of an examiner. The Third Circuit reaffirmed that “shall” is mandatory – courts lack discretion to deny examiner appointment when these criteria are met (FTX Trading, 91 F.4th at 153). The debtors, along with the Official Committee of Unsecured Creditors and others opposing the motion to appoint an examiner, had argued that the qualifier “as is appropriate” granted flexibility, but the Third Circuit interpreted it as directing the scope of investigation – not whether to appoint an examiner – which remains obligatory (ibid at 153–54).

Legislative intent and practical safeguards

In reaching its decision, the Third Circuit relied heavily on legislative history: Chapter 11’s framework for large cases is meant to provide special protection, including an “automatically appointed” examiner to ensure transparency and public trust (ibid at 155). At the same time, the court acknowledged that courts retain discretion to calibrate the examiner’s investigation scope, duration and cost – thus balancing oversight with efficiency (ibid at 156).

Application in FTX and broader impact

In FTX, the Third Circuit reversed the bankruptcy court’s denial of an examiner appointment – even though alternative investigations were already underway – citing public interest and conflict concerns involving debtor’s counsel (ibid at 156–57). By remanding for appointment of an independent examiner (Robert J. Cleary) with cost capped at USD1.6 million, the court reinforced the self-executing nature of the statutory trigger of Section 1104(c)(2) once its requirements were met. Following FTX, practitioners must anticipate examiner motions in mid-to-large filings. Even if burdensome, courts refusing to appoint will likely be reversed on appeal. Courts may still limit an examiner’s scope, but the requirement of appointment is clear.

Chapter 15 and comity: Vertiv, Inc. v Wayne Burt PTE (Third Circuit/D.N.J., 2024)

The Third Circuit reaffirmed the application of comity principles under Chapter 15 for enforcing foreign bankruptcy orders through a case involving a Singapore liquidation proceeding and concurrent New Jersey filings. The ruling underscored the efficacy of Chapter 15 in obtaining US recognition and enforcement of foreign insolvency decisions. (See Vertiv, Inc. v Wayne Burt PTE, Ltd, 92 F.4th 169 (3d Cir. 2024).) The efficacy of Chapter 15 is essential to international restructurings with a US component. Indeed, courts in New Jersey increasingly reinforce cross-border co-operation.

Comity outside Chapter 15?

Chapter 15 provides a statutory framework allowing US courts to recognise and enforce foreign insolvency judgments under principles of comity. Jurists have debated whether, absent a Chapter 15 filing, comity principles still allow deference to foreign proceedings. In Vertiv, the Third Circuit remanded a district court dismissal of Singapore-based litigation, where a liquidator sought enforcement of a turnover order. The district court had declined comity-based relief without Chapter 15 recognition. The Third Circuit found that the district court failed to apply appropriate deference as a matter of adjudicative comity (Vertiv, 92 F.4th at 175–76).

Chapter 15 as a practical tool in New Jersey and strategic takeaways

In the bankruptcy court, the liquidator promptly secured recognition of the Singapore court’s order via Chapter 15, gaining relief that had been unobtainable through ordinary litigation pending for over four years. Given the speed and flexibility available via Chapter 15 proceedings, one expects to see additional instances of debtors turning to Chapter 15 to solve third-party release issues post-Purdue. (See Harrington v Purdue Pharma L.P., 144 S. Ct. 2071 (2024).) In fact, a ruling on 1 April 2025 by the United States Bankruptcy Court for the District of Delaware indicates that bankruptcy courts within the Third Circuit may be open to recognising, pursuant to Chapter 15, non-consensual releases in restructuring plans approved by non-US tribunals.

In In re Crédito Real, S.A.B. de C.V., SOFOM, E.N.R. (Bankr. D. Del. Case No 25-10208-TMH), Bankruptcy Judge Thomas M. Horan ruled that non-consensual third-party releases approved by non-US tribunals do not preclude recognition under Chapter 15 of the restructuring plans containing them. In that case, the debtor had obtained approval by a Mexican court of a pre-packaged restructuring plan containing such releases. In opposition to the recognition of the plan, a creditor argued that non-consensual releases were contrary to US public policy in the wake of the Supreme Court’s ruling in Purdue and, therefore, that the public policy exception to the rule of comity precluded recognition of Crédito Real’s plan under Chapter 15. Overruling the creditor’s opposition, Bankruptcy Judge Horan concluded that Purdue is limited to cases under Chapter 11 of the Bankruptcy Code and, for that reason, does not preclude the recognition of a restructuring plan containing non-consensual releases pursuant to Chapter 15. Finding that “comity is key”, Judge Horan found that Crédito Real’s plan did not implicate the public policy exception asserted by the creditor.

The Vertiv and Crédito Real decisions underscore Chapter 15’s efficacy and speed, particularly in the District of New Jersey, to enforce foreign insolvency rulings. Practitioners should note the following.

• Comity alone may suffice in some instances, but Chapter 15 accelerates enforcement and provides a clearer legislative basis for doing so.
• The Third Circuit insists on proper comity standards even where Chapter 15 is not invoked – but then Chapter 15 can fill the gap.
• In cross-border disputes involving New Jersey debtors or assets, Chapter 15 should be considered a first-line strategy, particularly when other factors are present, such as a need to obtain third-party releases that may be permissible in the sister jurisdiction, but not in the USA after Purdue.

Direct versus derivative claims: Whittaker Daniels (Third Circuit, 2025)

Background and legal issue

In In re Whittaker, Clark & Daniels Inc., No 24-2210 (3d Cir. 10 Sept. 2025), the Third Circuit affirmed the bankruptcy court’s grant of summary judgment to the debtors, holding that successor liability claims against non-debtor Brenntag North America, Inc., under a “product line” theory, constitute general claims belonging to the debtors’ estates under Section 541(a)(1) of the Bankruptcy Code, rather than direct, personal claims available to individual tort creditors. The Official Committee of Tort Claimants (the “Committee”) argued that these claims were personal to the mesothelioma victims, as they arose from unique harms inflicted by the debtors’ asbestos-contaminated talc products. The Third Circuit, however, focused on the theory of liability, applying its established framework to distinguish between derivative (general) claims, which augment the estate for pro rata distribution, and direct (personal) claims, which stem from individualised injuries traceable to a non-debtor defendant’s independent conduct.

Legal framework for direct versus derivative claims

Drawing on In re Emoral, 740 F.3d 875 (3d Cir. 2014) and In re Wilton Armetale, Inc., 968 F.3d 273 (3d Cir. 2020), the panel reiterated that a claim qualifies as estate property if it (i) existed at the petition date and (ii) is general in nature, meaning it lacks a particularised injury and is based on facts available to any creditor. Critically, the Third Circuit’s analysis turns not on the injury’s character but on the liability theory: general claims derive from the debtor’s relationship with the third party and would benefit all creditors by expanding the estate, whereas personal claims involve direct interactions between the claimant and the third party. The Third Circuit rejected any additional requirement that the debtor hold an independent state-law right to assert the claim, clarifying that Bd of Trs of Teamsters Loc. 863 Pension Fund v Foodtown, Inc., 296 F.3d 164 (3d Cir. 2002) does not impose such a prong but merely notes it as sufficient under Section 541.

Application to successor liability claims

Applying this test, the Third Circuit determined that the Committee’s product-line claims against Brenntag – predicated on Brenntag’s acquisition of the debtors’ manufacturing assets and continuation of talc operations – depended solely on Brenntag’s successor relationship to the debtors, and not on any direct harm arising from Brenntag’s independent actions towards claimants. Thus, these claims were general and derivative of the estate, akin to those in Emoral, where successor liability against a non-debtor affiliate was deemed estate property. The court dismissed the Committee’s contention that the claims’ focus on tort victims rendered them personal, emphasising that the relevant inquiry is the commonality of the liability facts, not the creditor class affected. Accordingly, only the debtors may pursue or settle these claims, underscoring the primacy of the Emoral framework in mass tort bankruptcies involving successor theories.

Other recent case law developments

Unfortunately, the Supreme Court did not define or set the parameters for a voluntary third-party release in Purdue. As a result, courts have struggled with the question of whether a release contained in a plan of reorganisation is, in fact, voluntary. The Office of the United States Trustee, which oversees bankruptcy cases, has taken the position that releases in plans of reorganisation that require parties to opt out of the release are not voluntary. Several courts have agreed with the United States Trustee’s opinion.

The United States Bankruptcy Court for the District of New Jersey has not adopted the United States Trustee’s position. Instead, consistent with its pre-Purdue flexible and pragmatic approach to bankruptcy issues, that court found “opt-out” releases to be voluntary. (See, eg, In re Invitae Corporation (U.S.B.C. D.N.J. Case No 24-11362-MBK) (Confirmation Order entered 2 Aug. 2024 (Dkt No 913)); In re BowFlex, Inc. (U.S.B.C. D.N.J. 24-12364-ABA) (Confirmation Order entered 19 Aug. 2025); and In re Sam Ash Music Corporation (Confirmation Order entered 30 Aug. 2024 (Dkt No 438).) The flexibility and pragmatism of the New Jersey bankruptcy court in rulings on the issue contrasts with rulings by other courts, including the United States Bankruptcy Court for the District of Delaware, which is also situated within the Third Circuit. Yet, it may serve to make the New Jersey bankruptcy court a more attractive venue for Chapter 11 bankruptcy cases.

Conclusion and Practice Points

New Jersey’s ascendancy as a Chapter 11 venue – supported by both case volume and judicial refinement – allows legal practitioners an increasingly viable alternative for corporate restructuring. Simultaneously, recent Third Circuit jurisprudence has reshaped core bankruptcy doctrines on good faith filing requirements, examiner mandates, comity in international proceedings and derivative standing for creditors’ committees, among others.

• Venue advantages – Counsel should assess whether New Jersey offers strategic benefits (predictability, sophisticated bench) relative to other venues.
• Evaluate good faith and financial distress – Ensure Chapter 11 filings withstand good-faith doctrine scrutiny – especially for mass tort cases like LTL.
• Prepare for examiner motions – In large-debt cases, anticipate mandatory examiner appointment when unsecured debts exceed USD5 million.
• Structure cross-border filings thoughtfully – Use Chapter 15 where appropriate, armed with Third Circuit precedent reinforcing comity.

For attorneys practicing within – or steering clients towards – New Jersey, staying attuned to these developments is essential. Mastery of evolving doctrine, strategic venue selection and an eye towards emerging trends will position practitioners to navigate complex restructurings with greater confidence and effectiveness.