Below is our initial take on recent bankruptcy-related developments:
The U.S. Bankruptcy Court for the Central District of California has refused a motion to dismiss the Chapter 11 Bankruptcy case for The Hacienda Company, LLC, regardless of discovering that the company was participating in an on-going, post-petition violation of the Federal Controlled Substances Act (CSA).
S&K Take: This is a good article on two decisions NOT to dismiss a cannabis-related case, which ruling deviates from the norm (since cannabis is still banned from a Federal perspective). Will be interesting to see how brave cannabis-related debtors become or if this will be an isolated California court decision. California has always been on the front end of cannabis-related legal issues, so not a shock to see it there again.
On Tuesday, drugmaker Mallinckrodt won court acceptance from U.S. Bankruptcy Judge John Dorsey for a bankruptcy plan that will cut $1 billion from what it owes victims of the opioid crisis, terminates remaining equity shares and cuts about $2 billion in other debt.
S&K Take: MNK chapter 22 has reached its conclusion with Judge Dorsey approving the debtors’ plan over the objection of a shareholder arguing that there was a better way to do this. The plan will see opioid claimants take a “voluntary” (i.e. there was no better option) haricut of $1 billion. Acthar claimants are status quo and lenders have now become the owners.
Three Arrow Capital (3AC), the failed crypto hedge fund, is aiming to get a $284 million claim in opposition to crypto lender BlockFi. The claim was put into mediation by the federal judge overseeing BlockFi’s case.
S&K Take: Judge Kaplan adjourned 3AC’s motion for stay relief to prosecute preference actions against BlockFi, kicking the hearing out to February and pushing the parties to mediation in January on the issue. The settlement route worked for Genesis and FTX (discussed infra), so why not? We didn’t listen in to the hearing but seems as though there was some bonus fee shaming between counsel of the two entities.
On Wednesday, a New York bankruptcy judge authorized Genesis Global Trading’s settlement of $175 million to bankrupt crypto firm FTX. The authorized agreement highlights a notable decrease from the amount FTX debtors originally claimed totaling around $3.9 billion.
S&K Take: Genesis and FTX have wrapped up a mini-saga in both of their cases, with Genesis paying $175 million to settle almost $4 billion in alleged claims. Some FTX creditors were rabble-rousing and arguing that the settlement wasn’t enough and sought to get the UCC to press the issue. This is likely the first of many similar disputes (see supra) since the crypto world was so interconnected and the crypto winter was like a series of dominoes falling after the Terra Luna collapse destabilized the industry.
As stated by a California federal judge on October 9, Monster Energy is granted $20.9 million in attorneys’ fees and over $22 million in supplemental damages with its current bankrupt previous rival Bang Energy due to Bang’s apparent invalid advertising of its energy drinks.
S&K Take: The Bang energy case has been an adventure, as cases with eccentric former leaders (i.e. Jack Owoc) tend to be. This is another subtle twist, although one that likely doesn’t have a large impact other than further diluting the unsecured creditors’ pool in the case. There is apparently about $10 million to distribute, and Monster’s monster claim is in the ballpark of $336 million. Assuming no other unsecured claims, we are talking about 3 cents on the dollar, making the new judgment worth about $1.3 million on a $43 million win. Such is the bankruptcy life.