SUPREME COURT DECISION LIKELY TO HAVE PROFOUND IMPACT ON CORPORATE REORGANISATIONS
On 27 June 2024, the US Supreme Court issued its highly anticipated decision in Harrington v. Purdue Pharma L.P., holding that the Bankruptcy Code does not authorise Chapter 11 plans of reorganisation to release, without consent, third-parties’ claims against non-debtors.
The case resolves a long-running split among lower courts and ends a practice that, where it was allowed, was becoming a more common method of resolving creditor claims against private equity (PE) sponsors and mass tort claims on a global basis.
Purdue Pharma is the maker of blockbuster prescription opioid pain reliever oxycontin. As the opioid crisis unfolded over the last 15 years, Purdue found itself at the centre of controversy and exposed to increased civil liability for its role in marketing the drug.
In 2007, realising that litigation could come to impact them directly, Purdue’s owners, members of the Sackler family, began taking large distributions from the company, totalling $11bn between 2008 and 2016 – 75 percent of the company’s assets. Purdue was financially weakened and facing significant litigation in 2019, when it filed for Chapter 11 bankruptcy.
A key feature of Chapter 11 bankruptcy is the ability of debtors and their creditors to develop a plan of reorganisation that governs and distributes debtors’ assets and resolves liabilities and allows the debtors to reemerge from bankruptcy with a ‘fresh start’.
Purdue and the Sacklers proposed a plan that called for the family to return $4.325bn in distributions to the company – to pay creditors, including establishing a fund for alleged opioid victims – in exchange for a release of the alleged victims’ present and future claims not only against Purdue but against the Sackler family members, too.
Oct-Dec 2024 issue
King & Spalding LLP