The U.S. bankruptcy system is facing a backlash from all three branches of the federal government as big companies and wealthy individuals push the limits of chapter 11 to relieve themselves of legal and financial liabilities, the Wall Street Journal reported. The pushback stems in part from the continuing bankruptcy of Purdue Pharma LP, the OxyContin maker that filed for chapter 11 to resolve mass lawsuits alleging that the company and its owners, members of the Sackler family, helped fuel opioid addiction. The Justice Department and some members of Congress have said the bankruptcy case was misused to benefit the Sacklers at the expense of people who became addicted, while a federal judge last year overturned Purdue’s proposed settlement to provide the family with sweeping protection from civil opioid litigation. Other companies, such as former Ann Taylor owner Ascena Group Inc., also tried to use bankruptcy to protect insiders from litigation over alleged corporate wrongdoing. Johnson & Johnson has accessed the bankruptcy system to shield its profitable business assets from lawsuits alleging its talc-based baby products caused cancer. For decades, corporations have been using chapter 11 to break burdensome contracts, shed unsustainable debt and resolve litigation. Now, lawyers are turning the same tools on a new class of legal adversaries, namely individual claimants who allege they were harmed by dangerous products or other corporate malfeasance, said Steven Rhodes, a former judge who oversaw the city of Detroit’s bankruptcy. In particular, the bankruptcy cases filed by Purdue and J&J to protect themselves from opioid addiction and talc-related lawsuits have “brought to light the injustice and unfairness of it,” Mr. Rhodes said. The U.S. Trustee has been lodging objections and appeals in response to new efforts by companies and their advisers to push the limits of what chapter 11 enables them to do, according to the office’s director. Clifford White, who has served as director since 2006, said companies and advisers “have been testing the boundaries of the bankruptcy code. We think that there has been overreaching in how the bankruptcy code is used.” Some higher courts have agreed. In December, a federal judge in New York overturned a roughly $4.5 billion settlement in the Purdue case that would have shielded the Sackler family from civil legal liability tied to the opioid crisis. Read more. (Subscription required.)
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