Liability management exercises – using disclosure as a tool

Liability management exercises, sometimes dubbed ‘creditor-on-creditor violence’, are now a defining feature of the global restructuring market. Their growing use has been matched by an increase in related litigation, and has brought with it what is for many restructuring professionals a whole new world of disclosure.

How does disclosure work in four key jurisdictions – England & Wales, New York, the Netherlands, and Luxembourg?

A team from Freshfields in each jurisdiction (working with Elvinger Hoss Prussen in Luxembourg)[1] provide the answers.

This blog is an adapted version of an article first published in the April 2026 edition of Global Turnaround.

Introduction 

Interest in liability management exercises (LMEs) shows no sign of slowing in 2026. The shift towards LMEs has been accelerated in part by the perceived high costs and execution risk of Court-based restructurings, as seen in the UK with last year’s high-profile challenges to the Thames Water, Petrofac and Waldorf restructuring plans. 

The result is a market characterised by bespoke, opportunistic and sometimes controversial transactions. 

Although an LME is executed out of court, thereby not providing dissenting creditors with an available “platform” to challenge, they also do not give the finality provided by a court’s approval of a transaction. 

They therefore leave open the possibility of litigation long after implementation if excluded or disadvantaged creditors later challenge the deal. This happened in the US cases of Mitel, Selecta and Serta (in the latter case where the LME litigation is now in its sixth year), and Hurtigruten and Hunkemöller in Europe. 

A challenge to an LME is more likely to involve full-blown commercial litigation rather than the somewhat narrower and swifter court-based restructuring processes. Accordingly, a key feature of LME litigation when compared to in-court restructurings is often a wider scope of disclosure. 

For example, unlike the narrow, structured and one-way disclosure typically seen in UK restructuring plans, LME challenges may well trigger full-scale, bilateral and far more intrusive disclosure of documents relevant to a range of contractual, tortious and fiduciary claims. 

In some cases, this disclosure could be critical to the outcome, particularly where excluded creditors obtain contemporaneous documents evidencing minority oppression or breach of duty. 

This blog offers some practical steps on managing disclosure risk at the planning stage of an LME and using disclosure as a tool when challenging one. 

England & Wales 

England & Wales (along with the US) has one of the broadest disclosure regimes among major restructuring forums. The court typically orders “standard disclosure”, requiring parties to produce the documents they rely on and those that adversely affect their case or support another party’s. 

In the context of an LME challenge, where claims might encompass allegations of contractual breaches, tortious interference, unlawful means conspiracy or breaches of fiduciary duties, this could result in an expansive and intrusive disclosure exercise. 

Confidential documents are not protected from disclosure, although the court can take steps to protect such confidentiality. 

In England, although some initial disclosure needs to be given with each parties’ pleadings, the bulk of the process happens after the pleadings have been filed and before the parties exchange fact and expert evidence. 

That disclosure is then used at trial as the evidential backdrop, including for the cross-examination of witnesses and for the Court to reach its ultimate conclusion. 

The English court is likely to be sympathetic to excluded creditors who face information gaps. which will make it difficult for them to bring a claim about a deal they have been excluded from and have very little information on.

The Hurtigruten LME illustrates this; the court recently ordered the security agent to give pre-action disclosure (including enforcement instructions, fairness materials and details of the participating AHG’s holdings) to excluded creditors. 

It concluded that this disclosure would allow the excluded creditors to plead their case, would help the claim to be disposed of fairly (as the requested documents would likely be some of the most relevant evidence in the case) and would likely also save costs (as without the pre-action disclosure the excluded creditors would likely need to amend their pleaded claim after full disclosure had been given). 

Against this backdrop, legal privilege, which entitles a party to withhold privileged evidence from disclosure, is critical. 

English law recognises three principal categories: 

1. Legal advice privilege - covering confidential lawyer-client communications for the dominant purpose of giving or receiving legal advice.
2. Litigation privilege - protecting communications with third parties where litigation is reasonably contemplated and the dominant purpose is its conduct.
3. Without prejudice privilege - shielding genuine settlement discussions. 

In LME disputes, these protections can prove narrower than expected. Communications with sponsors, lenders and financial advisers may fall outside privilege protection if not carefully structured. Missteps in document circulation or unclear purposes can lead to inadvertent waiver. Careful planning around common interest arrangements, limited waivers and segregated communication channels is therefore essential to preserve privilege and limit the scope of disclosure in any subsequent litigation. 

New York 

Whether the parties litigate an LME transaction within bankruptcy proceedings (US federal court) or non-bankruptcy proceedings (US federal or state court), the disclosure rules are generally similar: parties may obtain non-privileged information relevant to any party’s claims or defences as long as it is proportional and not unduly burdensome. 

Third parties, such as restructuring or financial advisors, are routinely subject to discovery requests under the same broad standard. Discovery can be sought through document requests and depositions of fact witnesses, amongst other means.

Discovery in LME litigation is generally costly and time-consuming, often resulting in the production of hundreds of thousands of documents and dozens of depositions. 

Unlike certain jurisdictions, such as the UK, the US has no “loser pays” rule, so each party bears its own costs. Third parties also bear their own costs when responding to discovery requests. 

Thus, “repeat players” like restructuring advisors often require their clients to indemnify them for their discovery costs as a condition of their engagement, further increasing costs for parties in LME litigation. 

Confidentiality is not a defence to the production of information. Rather, a court may issue an order requiring parties to keep certain discovery material confidential. Privileged material, however, is not discoverable. 

A US federal statute, 28 U.S.C. § 1782, allows parties to non-US litigation to seek a US-court order authorising them to take US-style discovery “for use” in the non-US litigation from any person that can be “found” in the US. 

For example, US arms of non-US entities (such as global investment banks) may be “found” in the US, and such US arms might be required to produce documents held by non-US affiliates outside the US if the US arms can exercise “control” over such documents. 

Thus, if non-US litigants identify US-based persons that might have relevant information, they may obtain broad, US-style discovery to aid their prosecution or defence of the non-US lawsuit.

While pre-litigation discovery is generally not permitted in domestic US litigation, US Courts have interpreted 28 U.S.C. § 1782 to authorise discovery for use in non-US litigation that is not yet pending, so long as such litigation is within “reasonable contemplation.”

Netherlands 

Dutch civil procedure generally adopts a narrower approach to disclosure than common law jurisdictions. 

Since 1 January 2025, Article 194 of the Dutch Code of Civil Procedure (DCCP) is the primary mechanism for obtaining evidence. 

It allows a party to a legal relationship (such as a party to a contract or a tort claim) to request inspection, copying, or extraction of "specific data" from another party, provided they have a "sufficient interest." This aims to facilitate early information exchange. The requirement for "specific data" avoids “fishing expeditions,” in other words requests without a clear basis.

Dutch law also offers 'bewijsbeslag' (evidence attachment), a more invasive and effective tool. Rooted in Article 730 DCCP, it allows the precautionary seizure of documents or data - including digital communications - to prevent their concealment or destruction, making it a powerful strategic instrument in complex commercial disputes with information asymmetry, such as in the LME context. 

Dutch courts apply the "sufficient interest" test strictly. 

For instance, in an April 2025 LME judgment (Re Comviva), the Amsterdam District Court deemed a disclosure motion "premature" and lacking "sufficient interest." 

The court prioritised a threshold issue and, having determined that threshold issue, reasoned that broader disclosure in relation to that issue would therefore be irrelevant. This phased, judge-led approach often defers disclosure until central issues are resolved and balances the claimant’s interest against the defendant’s confidentiality concerns, especially for commercially sensitive data like valuation reports.

Similarly, in the Selecta LME case, the Dutch court denied an urgent disclosure request, deferring to the Netherlands Commercial Court of Appeal's procedural decision to first rule on admissibility. 

Legal professional privilege (verschoningsrecht) is robustly protected, and while confidentiality doesn't automatically bar disclosure, Courts can impose conditions. Cross-border evidence requests are subject to strict Dutch standards for specificity and legitimate interest, meaning broad discovery common elsewhere is generally not attainable in the Netherlands.

Luxembourg 

In Luxembourg, there are mechanisms to obtain disclosure from another party (contained in the new civil procedural code (NCPC)) but these are not frequently used. 

The Luxembourg courts normally interpret the conditions to obtain such disclosure narrowly. They generally require disclosure requests to be sufficiently specific, relevant to the solution of the litigation (or future litigation), for there to be a legitimate interest in the disclosure being provided, and for there to be existing evidence that the other party to the litigation or a third party has possession of the additional evidence of which disclosure is sought. This prevents parties undertaking “fishing expeditions” through the Luxembourg courts. 

Such disclosure can be obtained in formal merits proceedings, during which parties are required to cooperate with the disclosure process. It can also (if there is a legitimate reason) be obtained in summary proceedings (i.e. before the formal trial stage) or if litigation has not yet started but is likely to come into existence. 

Legal professional privilege is protected from disclosure by professional secrecy laws. However, the mere confidentiality of documents (as agreed between parties) cannot protect documents from disclosure ordered by the Courts.

Practical tips 

Across all four jurisdictions, one theme is clear: planning and executing an LME transaction will undoubtedly lead to the creation of significant volumes of documentation that could become evidence in hostile litigation long after the transaction has closed. 

Parties should therefore approach an LME from the outset with the same discipline as they would for commercial litigation. 

Privilege must be handled with precision. It cannot be assumed; labels alone or merely copying a lawyer into an email chain will not protect a document from disclosure. 

Challenging creditors should also consider how disclosure can be used to their advantage. In an LME context - where information asymmetries are common - creditors are increasingly turning to disclosure tools to not only defend their position, but to build it. 

This could include seeking pre-action disclosure to obtain transaction materials before a claim is issued and leveraging cross-border evidence mechanisms, helping to close information gaps that would otherwise impede the formulation of a challenge. 

Understanding these tools - and the risks they create - reinforces why discipline around communications, privilege structures and document handling remains essential from the outset.