Whether the trustee back out or not, he would have had to get the BK court's approval on the settlement. As on BK court noted: “under the ‘fair and equitable’ standard, [courts look] to the fairness of the settlement to the other persons, i.e., the parties who did not settle.” SEE Will v. Northwestern Univ. (In re Nutraquest Inc.), 434 F.3d 639, 645 (3d Cir. 2006).
Furthermore, “in the final analysis, the court does not have to be convinced that the settlement is the best possible compromise. Rather, the court must conclude that the settlement is within the reasonable range of litigation possibilities.” In re Penn Cent. Transp. Co., 596 F.2d 1102, 1114 (3d Cir. 1979); In re World Health Alternatives Inc., 344 B.R. 291, 296 (Bankr. D. Del. 2006). The debtors carry the burden of persuading the court that the compromise falls within the reasonable range of litigation possibilities. In re A & C Properties, 784 F.2d 1377, 1381 (9th Cir. 1986).
Therefore, BK litigants must be aware of the very real possibility that their mutually agreed-upon settlement terms might be rejected by a bankruptcy court.