The Boy Scouts of America has received a green light from a judge to proceed with its $850 million reorganization plan to exit bankruptcy and settle more than 80,000 claims brought by victims of sexual abuse.

The ruling by U.S. Bankruptcy Judge Laurie Selber Silverstein means the organization can proceed to try to get formal approval for the plan from creditors, including a majority of the victims, as part of the larger goal of exiting its bankruptcy and compensating claimants.

The $850 million agreement is between the Boy Scouts national organization and about 250 local councils along with law firms representing about 70,000 former scouts who allege they were molested. A fund for survivors would receive about $250 million from the national Boy Scouts and $600 million from local councils, along with insurance rights.

The Restructuring Support Agreement (RSA) was opposed by insurers for the organizations. They contend there were conflicts of interest among the parties to the agreement and that the parties did not meet the proper business judgment standard required by law in negotiating it.

However, the judge rejected the arguments by insurers, finding that the “debtors have met the relevant standard” and that the insurers’ evidence was unconvincing.

The judge also declined to dismiss a $650 million settlement that the Boy Scouts reached in April with one of their insurers, The Hartford. The Boy Scouts asked to be excused from that deal because abuse claimants do not support it but the judge left the fate of the Hartford offer to be decided at a later date.

The judge also withheld approval of a provision relating to payment of about $%10.5 million in legal fees to lawyers for the Coalition of Abused Scouts for Justice, which represents about 60,000 of the sex abuse victims. She expressed concern that these millions of dollars would come out of the pockets of victims. “While one can argue that on a relative scale that’s not that great, any funds diverted from abuse victims, especially to pay an obligation of their lawyers, needs to be closely examined,” the judge said.

In announcing her overall decision, the judge stressed its limited nature.

“My conclusion: I have found that the entry into the RSA is a sound exercise of Debtor’s business judgment. The parties can proceed with the RSA without the findings regarding the Hartford settlement agreement and fees for the coalition, or not,” Silverstein said in reading her ruling.

According to a transcript, she then added, “Let me emphasize the limited nature of my ruling today. I am being asked to approve Debtor’s entry into the RSA. I am not approving the term sheet, the fourth amended plan, any disclosure statement, or anything else, and the order I entered today does not suggest that I will do so or need to do so.”

David J. Molton, attorney at Brown Rudnick who represented the Coalition of Abused Scouts for Justice, praised the ruling by Judge Silverstein approving the RSA.

“The agreement, which cements the initial $850 million funding of a compensation fund for survivors of sexual abuse, mandates safe scouting protocols for Boy Scouts’ exit from bankruptcy and enables the Coalition, together with its partners in the agreement, to procure settlements from Boy Scouts’ insurers and sponsoring partners that will bring in additional billions of dollars to compensate survivors,” Molton stated.

The ruling came after a three-day hearing. The next step is an August 25 hearing to decide on a disclosure statement that explains the terms of the reorganization to creditors so they can vote on a plan.

The Boy Scouts filed for Chapter 11 bankruptcy protection in February 2020. The organization has argued that the restructuring agreement and bankruptcy process provide the best opportunity to compensate victims.

*This story ran previously in our sister publication Insurance Journal.