Purdue Pharma Bankruptcy Update
Purdue Pharma’s chapter 11 bankruptcy filing in the Southern District of New York (White Plains) on Sunday evening came as no surprise to anyone. The filing is an integral part of deal between Purdue and some 24 states to settle more than 2,000 lawsuits against the company arising from Purdue’s alleged role in nation’s current opioid crisis. Purdue and the settling states expect to use the chapter 11 bankruptcy case to restructure Purdue as a public trust from which profits derived from the sale of the company’s opioid products (e.g. OxyContin) will be directed to state and local governments for use in programs designed to address the crisis. Connecticut and New York are among the states that are not part of the settlement and expected to opposed the bankruptcy restructuring.
Purdue has no secured debt – in fact relatively no debt to speak of at all. As such, if Purdue is able to halt the non-settling lawsuits, it will be able to press forward with its restructuring plans unhindered by the power of secured creditors to keep a chapter 11 debtor on a tight leash through limiting and conditioning use of cash collateral.
Initial scuffles in the bankruptcy court will likely be over application of the automatic stay to halt ongoing litigation between Purdue and those states and government entities that are not part of the deal reached last week. Purdue has signaled that it intends to file papers with the bankruptcy court to obtain a preliminary injunction to enforce the automatic stay – which will surely provoke strenuous opposition. Presumably, those state and municipal governments opposed to the injunction will argue that their lawsuits are subject certain statutory exceptions to the automatic stay or that grounds exist to lift the stay to allow continuation of the lawsuits.
For his part, Bankruptcy Judge Robert Drain is no amateur when it comes to large chapter 11 cases, having presided over the cases of, among others, A&P, Hostess Brands, Delphi Automotive and Sears. This court should be sufficiently suited to bring some semblance of order to the myriad disputes that have pressed this otherwise financially healthy company into bankruptcy.