Generic drugmaker Mallinckrodt is at risk of filing for bankruptcy again, a development that stands to disrupt its commitment to paying opioid victims under a settlement deal — but former executives are likely to keep their liability releases anyway, WSJ Pro Bankruptcy reported. The Dublin-based company, which reached a $1.7 billion opioid settlement last year through a bankruptcy filing, is now considering a repeat chapter 11 filing after struggling financially. If it files for bankruptcy again, its former executives’ grants of legal immunity from civil opioid lawsuits will likely be unaffected, according to legal experts. Those releases will stand “unless somehow the court in the second case felt it had the power to vacate the confirmation order in the first case — which rarely, if ever, happens,” said Bruce Markell, a former bankruptcy judge and now a professor at Northwestern University Pritzker School of Law. But the remaining $1.25 billion in opioid settlement payments that Mallinckrodt still owes could be reduced or delayed because those claims are unsecured, meaning there is no collateral that can be seized. Mallinckrodt’s financial position has weakened considerably since the settlement was reached. Its earnings have faltered since the confirmation of the chapter 11 plan, which shaved off about a quarter of the more than $5 billion debt load that Mallinckrodt brought to bankruptcy court. The company has also been weighed down by some high-interest debt obligations that weren’t resolved in bankruptcy, and it has faced continuing litigation from certain lenders.
The judge overseeing FTX's U.S. bankruptcy said Thursday that he would not defer to a Bahamian court about key issues like which FTX entity should collect assets and repay customers of the bankrupt crypto exchange, Reuters reported. Liquidators for FTX Digital Markets, the exchange's Bahamas-based subsidiary, have asked U.S. Bankruptcy Judge John Dorsey to let them seek a ruling from the Bahamas Supreme Court that their company controlled FTX.com's crypto exchange for international customers. FTX's U.S. bankruptcy team seeks to block the Bahamas litigation, calling it a power grab that would derail the company's ongoing efforts to repay customers. Judge Dorsey questioned the value of a Bahamian court ruling during a Thursday court hearing in Wilmington, Delaware, saying that he would retain authority over the $7 billion in assets recovered by the U.S. debtors no matter what the Bahamian court rules. Both courts would have to sign off before any assets transfer from the U.S. to the Bahamas, Judge Dorsey said. "It doesn't go to FTX Digital until I say it goes to FTX Digital," Judge Dorsey said. "So what are we gaining by having two parallel proceedings in two separate courts?" Chris Shore, an attorney for the Bahamian liquidators, said that a Bahamas court ruling would clarify each side's responsibilities and provide a framework for cooperation between the U.S. bankruptcy case and involuntary insolvency proceedings in the Bahamas.
The U.S. Justice Department (DOJ) has filed an objection to a motion by bankrupt cryptocurrency trading platform Bittrex to allow customers to withdraw their crypto and fiat, Cointelegraphc.com reported. The U.S. Treasury’s Office of Foreign Assets Control (OFAC) is Bittrex’s biggest creditor, but its claim would be subordinated under the Bittrex proposal. Bittrex was charged in October by both OFAC and the Treasury’s Financial Crimes Enforcement Network (FinCEN) with sanctions violations for allowing individuals based in Crimea, Cuba, Iran, Sudan and Syria to make transactions from 2014 to 2017. OFAC and FinCEN assessed penalties of $24 million and $29 million, respectively. A Bittrex spokesperson told Cointelegraph at the time that the exchange was “pleased” to resolve the charges. It agreed to pay $24 million of its penalty to FinCEN, receiving a $5 million credit from the agency, while OFAC credited Bittrex $24 million, which remains Bittrex’s largest debt. The crypto platform’s problems did not stop there. The U.S. Securities and Exchange Commission sued Bittrex for unregistered securities operations in April, and that action could also result in monetary penalties. In May, Bittrex declared bankruptcy in the U.S. Bankruptcy Court for the District of Delaware. Within days of its bankruptcy filing, Bittrex proposed a plan to make customers whole. The DOJ argued in its June 7 filing that the Bittrex proposal improperly applies the standard that would allow it to pay some creditors ahead of others.
Compass Medical's decision to file for bankruptcy will affect a class-action lawsuit filed on behalf of patients and might delay access to their health records, lawyers say, the Quincy (Mass.) Patriot Ledger reported. Compass filed for chapter 7 bankruptcy on Monday, less than a week after abruptly closing its doors and discontinuing services to about 70,000 patients. The Quincy, Mass.,-based corporation, which also had a branch in Braintree, will have no money available to pay unsecured creditors after administrative expenses are paid, according to the bankruptcy form submitted by Compass President Bruce Weinstein and his attorney, D. Ethan Jeffery. The bankruptcy filing comes on the heels of a class-action lawsuit filed in Plymouth Superior Court on Friday. The class representative in that case, Richard Callanan, of Abington, is represented by lawyer Jonathan Sweet. In October 2022, a Suffolk County Superior Court jury ordered Compass to pay $16 million to its partner, Steward Health Care System, for fraud.
The Sackler family owners of Purdue Pharma are a giant step closer to being reprieved. In winning an appeals court’s approval last week to resolve lawsuits accusing the family members of fueling the opioid crisis, Purdue’s bankruptcy case had to clear a new, stringent list of criteria that set a high bar for others seeking relief from mass lawsuits, according to a WSJ Pro Bankruptcy commentary. The U.S. Court of Appeals for the Second Circuit in Manhattan took more than a year and 97 pages in the landmark ruling that tackles a thorny issue for the judiciary: When should bankruptcy courts issue grants of immunity, known as third-party releases, to shield nonbankrupt businesses and individuals from lawsuits even when faced with objections? The debate about releases has taken on new meaning as a number of companies, such as 3M and Johnson & Johnson, and individuals, such as the Sacklers, try to escape mass lawsuits alleging harm from defective products or other wrongdoing. Some critics have argued that releases allow the wealthy and the powerful to use bankruptcy to get out of costly lawsuits without having to file for chapter 11 themselves and at claimants’ expense. In Purdue’s case, the pharmaceutical company sought to release its family owners from all current and future lawsuits, alleging that their efforts to drive sales hid the addictive nature of its flagship painkiller, OxyContin. In exchange, the family agreed to pay up to $6 billion in a settlement over time. Purdue’s request to extend the reprieve to the Sacklers cleared all seven factors the appeals court had laid out to consider whether such a release should be granted. Last week’s ruling also indicates that other companies or individuals seeking similar deals now need to meet the same legal threshold.
The liquidator of bankrupt crypto exchange FTX is trying to retrieve nearly $4 billion for creditors — from another bankrupt crypto firm. After a hearing on June 15, a court in the Southern District of New York will decide whether to let FTX pursue Genesis Global Capital (GGC), a crypto lender, over payments said to have been made shortly before the exchange’s collapse amid allegations of fraud, Wired reported. GGC, which filed for bankruptcy in January after being caught in the blowback from FTX’s implosion, only has about $5 billion in assets. GGC and FTX’s business relationship was substantial. The former provided Alameda Research, FTX’s sister company, with large loans — at one point amounting to nearly $8 billion — to fund its capital-intensive crypto bets, while GGC used FTX for its own crypto trading activity. The court motion filed by FTX’s liquidator describes GGC as “one of the main feeder funds” to FTX and therefore “instrumental to its fraudulent business model.” To fund its loans, GGC borrowed from individuals and institutions that owned large quantities of crypto, who received a cut of the profits in return. But this arrangement, combined with its close ties to FTX, made GGC triply vulnerable to trouble at the exchange. Not only did GGC have $175 million locked up on the FTX platform at the time of the bankruptcy, but the ensuing panic led to a surge in attempts by customers to redeem crypto from GGC. Unable to meet the influx, GGC was forced to suspend withdrawals as it sought an emergency cash injection — and ultimately, to file for bankruptcy itself. (Genesis Global Trading, the brokerage arm, remains active and solvent.) Now, GGC has to fend off FTX’s clawback claim, too. The suit alleges that Alameda paid GGC $1.8 billion in loan repayments and $270 million in collateral pledges, and that the lender — and nonbankrupt affiliate GGC International Limited — withdrew $1.8 billion from FTX’s trading platform, all in the 90 days before the exchange filed for bankruptcy. FTX claims each of these transactions should be reversed. If the case proceeds, GGC will likely argue that the $1.8 billion in loan repayments were made in the ordinary course of business, which would exempt them from being recalled. But it’s not guaranteed that, even if the New York judge allows FTX’s claim to continue, the dispute will ever get to court. The likelihood that clawback cases make it all the way to litigation, says Alan Rosenberg, partner at law firm MRTH and member of the American Bankruptcy Institute, is low; they almost always end in settlement. And FTX can use this fact to its advantage. “The truth is, there’s an economic consideration to be taken into account when defending [against clawbacks],” says Rosenberg. “Even if you have a great defense, it’s going to cost money to litigate. So you have to make a decision as to whether it’s more cost-effective to pay an amount to get rid of the claim.” The only mercy for creditors, says Rosenberg, is that both FTX and GGC — as bankrupt entities — have a fiduciary duty to reach an agreement as quickly as possible. “Everybody’s goal is to make a distribution to creditors. The more you fight, the more it will deplete the estate,” he says. “Both parties have an interest in reaching a resolution swiftly.”
Lawsuits against FTX’s financial backers and celebrity endorsers by customers of the failed cryptocurrency exchange have been consolidated before a single federal judge in Florida, Bloomberg News reported. A judicial panel on Monday ordered the creation of a multi-district litigation before U.S. District Judge K. Michael Moore in Miami, noting that the company had its U.S. headquarters there before filing for bankruptcy. Customers have filed several class actions against venture capital and private-equity firms, including Sequoia Capital and Thoma Bravo, that invested in FTX, claiming they enabled co-founder Sam Bankman-Fried, who is facing fraud charges stemming from the exchange’s collapse. Celebrities that endorsed FTX, including Tom Brady, Gisele Bundchen, Shaquille O’Neal and Larry David, have also been sued. FTX itself has been protected from litigation since its November chapter 11 filing in Delaware, but that stay doesn’t apply to third parties that allegedly facilitated the exchange’s actions. Bankman-Fried has pleaded not guilty to a 13-count indictment, part of which alleges he orchestrated a scheme to transfer billions of dollars in FTX customer funds to Alameda Research, an affiliated hedge fund, for risky trades and personal use.
Mattress maker Serta Simmons Bedding yesterday said that its chapter 11 reorganization plan has been confirmed by a U.S. bankruptcy court, bringing the bedding company one step closer to emerging from bankruptcy, Reuters reported. The Doraville, Ga.-based company, whose roots date to 1870, filed for chapter 11 protection from creditors in January with the U.S. Bankruptcy Court in the Southern District of Texas, in a bid to eliminate most of its debt. The mattress manufacturer, which accounts for nearly one-fifth of U.S. bedding sales and whose brands include Serta, Simmons, Beautyrest, and Tuft & Needle, said it is operating normally as usual. Serta Simmons, backed by Apollo Global Management and Gamut Capital Management through its restructuring plan, aims to reduce its debt to $315 million from $1.9 billion, in addition to which it projects that the company's annual cash interest expense will fall by more than $100 million. The company during the COVID-19 pandemic had added $200 million of new capital to weather higher raw material costs and supply chain disruptions. However, significant amounts of debt maturing in 2023 have made the company's capital structure unsustainable, necessitating a comprehensive restructuring that is now supported by more than three-quarters of its key lenders.
Credit repair services provider Progrexion filed for bankruptcy after losing a court decision to dodge $2.7 billion in payments requested by the Consumer Financial Protection Bureau (CFPB), WSJ Pro Bankruptcy reported. The Utah-based owner of Credit.com, Creditrepair.com and the Lexington Law brand on Sunday sought protection from its more than 100,000 creditors in the U.S. Bankruptcy Court in Wilmington, Del. Progrexion, backed by investment firm Prospect Capital, has been fighting a lawsuit brought by the CFPB since 2019 when the consumer protection bureau accused the company of violating telemarketing sales rules by requesting and receiving payments of prohibited upfront fees for services. Progrexion has denied the allegations. The CFPB said that companies may charge fees for telemarketed credit repair services only after providing consumers with proof that the promised results have been achieved.
FTX Trading Ltd. cannot join confidential mediation sessions between bankrupt crypto lender Genesis Global Holdco and its parent company Digital Currency Group, a judge ruled yesterday, Bloomberg News reported. Bankruptcy Judge Sean Lane declined to open the settlement talks to FTX, which is also in bankruptcy and claims that Genesis owes it $3.9 billion. Instead, Lane gave Genesis, a group of its biggest creditors and DCG more time to come up with a revised payout proposal. Any agreement would form the basis of a chapter 11 bankruptcy plan to pay hundreds of thousands of Genesis creditors. In doing so, Lane has overruled the objections of FTX and several Genesis customers. About two dozen individuals had emailed the judge, urging him to immediately end the settlement talks and order payouts to creditors. Some creditors complained that they hadn’t been given any information about what’s happening with their claims. “There will be a certain amount of radio silence because mediation needs that to work,” Judge Lane said. “Shortening the mediation does not shorten the case.” Meanwhile, Genesis has said that it’s planning to update its current reorganization plan. Once that plan is filed, creditors will be asked to vote on it. Lane will then take those votes into consideration when he decides whether to approve the proposal.
