Below is our initial take on recent bankruptcy-related developments:
Purdue Pharma Mediator to Recommend Ways to End Bankruptcy | Reuters
A mediator will soon outline recommendations for ending Purdue Pharma's bankruptcy which is expected to provide billions of dollars to address the opioid crisis that the OxyContin maker has been accused of fueling.
S&K Take: Judge Chapman, acting as mediator, will submit a progress report to the Court on Friday. Earlier in the week, it was reported that the Sacklers could increase their settlement payment by about 25% (from $4 billion and change to $5 billion plus) to resolve the situation. Obviously we are talking about some serious consideration. It remains to be see if the parties can reach consensus, but it seems more and more likely that the Second Circuit is off the hook (for the time being) with respect to addressing third party releases.
Small-Business Bankruptcy Rules Poised for Extension by Congress | Bloomberg
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In an era of hyper-partisanship, an obscure federal program that makes it easier for small-business owners to shed debt in bankruptcy has been embraced by Democrats and Republicans, who are now weighing an extension of this rule.
S&K Take: While the report is based on a quote from a lone Senator, this is good news. Subchapter V has seemed to be a success by all accounts, providing small businesses with access to the chapter 11 process which they might not have had previously. The debt limit of $7.5 million seems to be right sized. Congress can certainly snatch defeat from the jaws of victory, but we hope that this momentum continues and the increased debt limit is extended, if not made permanent.
Crystal Cruises’ Epic Bankruptcy Leaves Customers, Agents Out $100 Million | Bloomberg
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Crystal Cruises, a cruise ship under the bankrupt parent company Genting Hong Kong, has shut down, leaving behind a string of debts, including unpaid fuel bills of $4.6 million.
S&K Take: Truly an incredible story here. High end cruise line Crystal was effectively abandoned by its parent, Genting Hong Kong, leading to multiple vessel arrests and a wind up proceeding in Bermuda. The situation is illustrative of how fast a situation can turn -- basically overnight. Have to feel bad for customers who were blindsided by this. It is also interesting to note that vessel sales will largely be insufficient to satisfy even senior creditors (it isn’t quite clear whether the vessels were subject to sale-leaseback transactions or traditional financings -- the article seems to suggest that these were secured transactions instead of sale transactions, which transactions would transfer vessel ownership, obviating the need for a foreclosure sale). The value in the vessels in this industry is not in the steel, but instead in the operations and the underlying contracts. Without those, a lot of creditors are left in the lurch.
Sequential Brands’ Ch. 11 Releases Dubbed Unconfirmable | Law360
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Chapter 11 liquidation plan of Sequential Brands Group Inc., former Jessica Simpson fashion line owner, was denied by the U.S. Trustee’s Office for imposing third-party liability released on non-debtors.
S&K Take: The UST is raising yet another release objection, on the heels of a Judge Karen Owens decision rejecting certain third-party releases earlier in the week. The data points are coming fast and furious (we will have more on this next week). This is a part of a sea change in the bankruptcy industry, with all third-party releases subject to high scrutiny.
J&J Has ‘Perverse Incentive’ in Chapter 11, Bankruptcy Vet Says | Bloomberg
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Saul Burian, a bankruptcy restructuring expert, argued that Johnson & Johnson is using LTL Management, the small unit of J&J created to resolve billions of dollars in talc-related litigation, to avoid stigma and court restrictions of filing for bankruptcy itself.
S&K Take: The trial to decide whether J&J’s LTL subsidiary can stay in bankruptcy continues. The article refers to the notion that J&J has an incentive to drag this process out while sick claimants pass away. This seems to be based on a fallacy -- a bankruptcy resolution should be more expedient than litigating 38,000 disparate claims in various jurisdictions, and then seeking to enforce any judgments. The bigger question is limitation of liability. If the bankruptcy is permitted to proceed, claimants would only be able to seek recourse against LTL (and currently $2 billion in funds). If it is dismissed and the “Two-Step” is rejected, they’d have recourse to the healthy J&J entities which have hundreds of billions in assets. So while the Texas Two-Step could be considered unfair for many reasons, there is at least an argument that attendant delay isn’t one.
