*

Container Store ( TCSGQ ) debt deal would provide legal shield to

lenders,

executives

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DOJ watchdog says "opt out" forms cannot obtain consent in

bankruptcy

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Bankruptcy courts have grappled with "consent" after

Purdue

ruling

By Dietrich Knauth

Jan 21 (Reuters) - A Department of Justice watchdog on

Tuesday challenged a popular Texas bankruptcy court's practice

of approving broad legal protections for a bankrupt company's

directors, officers and other non-debtors, saying that creditors

who do not "opt out" cannot be assumed to consent to a deal.

The DOJ's Office of the U.S. Trustee filed its objection in

The Container Store's ( TCSGQ ) bankruptcy case, arguing that Texas state

law does not support the retailer's argument that creditors

consented to release potential legal claims against the

company's officers and other non-debtors because they had not

returned an "opt out" form in the bankruptcy.

U.S. federal bankruptcy law does not define "consent," so

the court should apply Texas contract law in its ruling, the

U.S. Trustee said.

The Houston bankruptcy court where The Container Store ( TCSGQ ) filed

for Chapter 11 has previously erred by allowing the use of "opt

out" consent in recent bankruptcy cases, the U.S. Trustee

argued.

The U.S. Trustee asked the court not to approve The

Container Store's ( TCSGQ ) proposed debt restructuring.

The Container Store ( TCSGQ ) declined to comment.

Debates over what "consent" entails have roiled bankruptcy

courts across the U.S. since last summer's blockbuster U.S.

Supreme Court ruling in Purdue Pharma's bankruptcy.

The Supreme Court blocked the OxyContin maker from using

non-consensual releases to shield its wealthy Sackler family

owners from lawsuits over their role in the nation's deadly

opioid epidemic, but it did not define "consent."

Since then, courts have split on the issue, with some judges

ruling that creditors must affirmatively consent to settlements

that release their legal claims. Conversely, Houston's

bankruptcy court has embraced opt-outs in cases like the

bankruptcy of appliance component manufacturer Robertshaw U.S.

Holdings, ruling that opt-outs can be appropriate if creditors

are informed about the non-debtor release and given the

opportunity to speak up.

The Container Store ( TCSGQ ) filed for bankruptcy protection on Dec.

23, seeking to cut $45 million in debt after its sales faltered

due to high inflation and reduced consumer spending.

U.S. Bankruptcy Judge Alfredo Perez is scheduled to consider

approval of The Container Store's ( TCSGQ ) debt deal at a Jan. 24 court

hearing. The debt restructuring would also grant legal

protections to "numerous known and unknown third parties,"

including the company's lenders and current and former

directors, officers and equity holders, according to the U.S.

Trustee's objection.

The case is In re: The Container Store Group Inc ( TCSGQ ), U.S.

Bankruptcy Court for the Southern District of Texas, No.

24-90627

For the U.S. Trustee: Ha Nguyen of the Office of the U.S.

Trustee

For The Container Store ( TCSGQ ): Tad Davidson and Ashley Harper of

Hunton Andrews Kurth; George Davis, Hugh Murtagh and Ted Dillman

of Latham & Watkins

Read more:

Home goods retailer The Container Store ( TCSGQ ) files for bankruptcy

protection

US Supreme Court Purdue ruling makes mass litigation tougher

to resolve in bankruptcy

US Supreme Court blocks Purdue Pharma bankruptcy settlement

(Reporting by Dietrich Knauth in New York)