Below is our initial take on recent bankruptcy-related developments:
On Tuesday, U.S. Bankruptcy Judge Sean Lane granted Purdue Pharma court approval for a 60-day freeze on lawsuits against the Sackler family, owners of Purdue Pharma, in its first court appearance since a landmark Supreme Court ruling upended its bankruptcy settlement. At a court hearing in White Plains, New York, Judge Lane permitted an injunction that will give Purdue a chance to rework an extensive settlement of lawsuits claiming that its painkiller OxyContin prompted an opioid addiction crisis in the U.S.
S&K Take: The Purdue debtors and creditors acted quickly in the wake of the Supreme Court decision to implement a 60 day stay of litigation to determine if a deal could be recut without the nonconsensual third-party releases that had previously been critical to the Sacklers. The Committee moved for standing to prosecute fraudulent transfer actions against the Sacklers, although that won’t move forward until the parties engage in this upcoming round of mediation. There is a long row to hoe to revise the settlement, but my hunch is that the parties will be able to get it done. Too much has been invested in this deal at this point for the parties to just simply walk away and commence what will surely be years of litigation.
Owner of movie rental company Redbox and streaming service Crackle, Chicken Soup for the Soul Entertainment, has entered bankruptcy on rocky footing, with its lenders moving to gain control from the company’s chief executive, William Rouhana. The entertainment company filed for Chapter 11 bankruptcy protection in Wilmington, Delaware last Friday, with plans to fund its restructuring with a $20 million bankruptcy loan from private credit firm Owlpoint Capital. Private investment firm HPS Investment Partners, which is owed $500 million, swiftly proceeded to attempt to block the new loan and seize control of the company from its CEO.
Former chief executive of Chicken Soup for the Soul Entertainment, William Rouhana, declined to testify regarding his company’s negligence to pay employees and the company’s attorneys before filing for Chapter 11 bankruptcy.
Chicken Soup for the Soul Entertainment, has converted its bankruptcy filing from Chapter 11 to Chapter 7, choosing to liquidate its assets and let go of their 1,000 person workforce.
S&K Take: Well that escalated quickly. We went from a chapter 11 filing to a DIP fight to serious allegations of mismanagement to new debtors’ counsel to a chapter 7 conversion in 9 days. Not something that you see on a regular basis. The debtors had filed with Reed Smith as counsel and Rouhana in charge. A number of parties, with HPS, the debtors’ significant prepetition lender, challenged that paradigm. Eventually HPS agreed to a DIP to get the debtors’ employees paid and a board independent of Rouhana took over with Pachulski coming in as counsel. A day later the case was converted as Pachulski purportedly uncovered the misappropriation of employee wage deductions for healthcare and retirement savings. HPS wouldn’t lend any further, making the case “hopelessly insolvent” and Judge Horan converted on an oral motion of the debtors. Some strong verbiage was used, including “criminal,” “sickening” and “disturbing.” Some chapter 7 trustee in Delaware is going to land a doozy.
U.S. District Judge Michael Shipp denied a bid by a group of cancer victims to block Johnson & Johnson from pursuing a suggested bankruptcy agreement of tens of thousands of lawsuits claiming the company’s baby powder and other talc products contain cancer-causing asbestos.
S&K Take: Before the July 4th holiday, J&J secured a small win in its ongoing battle to resolve talc liabilities, with a District Court judge declining a request to enjoin a subsidiary from filing a bankruptcy outside of the Garden State. Judge Shipp ruled that the potential injury – having to file a motion to transfer venue IF the company filed a bankruptcy in Texas – did not suffice to give the claimants standing to seek injunctive relief. This victory was short-lived, however, as the claimants appealed the decision to the Third Circuit on July 8. This may all ultimately be moot depending on the outcome of voting on the prepack, which is set to culminate July 26.