Below is our initial take on recent bankruptcy-related developments:
Puerto Rico Released From Bankruptcy as Economic Problems Persist | The Wall Street Journal
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U.S. District Judge Laura Taylor Swain approved Puerto Rico’s reorganization plan, slashing the Island’s debt down from $30.5 billion.
S&K Take: An impressive collective effort has produced a confirmed plan in the largest restructuring of municipal debt ever. PREPA and HTA restructurings are still in the works, but a huge milestone for Puerto Rico nonetheless.
Toys ‘R’ Us Directors Face New Fraud Claims Over Bankruptcy | Bloomberg
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The creditors of Toys “R” Us are alleging the fraud and breach of duty from the company’s board members and owners over the 2017 bankruptcy.
S&K Take: The allegations in question revolve around the incurrence of additional debt at the outset of the Toys’ bankruptcy cases, as well as the payment of bonuses ($2.8 million) to directors that signed off on the deal. It is unusual to see bankruptcy financing called into question, but in this case creditors had been screaming from the outset that liquidation was the best route. So this will be one to keep an eye on. The bonuses seem a little more like low hanging fruit -- amounts paid to management immediately prior to or even in bankruptcy have been in the cross hairs lately, with Congress even chiming in.
J&J Baby Powder Judge Says Two Victim Panels is One Too Many | Bloomberg
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U.S. Bankruptcy Judge Michael B. Kaplan ruled that the federal bankruptcy watchdog must consolidate the 38,000 claimants in Johnson & Johnson’s talc litigation into a single official committee.
S&K Take: In an interesting decision, Judge Kaplan disbanded two committees and reinstated the original tort claimants’ committee. The US Trustee had formed two committees, one to represent ovarian cancer claimants and one to represent mesothelioma claimants. The Judge noted that the UST failed to provide evidence supporting its decision to divide the committees, leaving the Judge in a bind. This doesn’t foreclose the possibility of a split committee in the future though. The Judge noted that an ad hoc committee could be formed and could petition the court for recognition.
Appeals Court to Move Quickly on Purdue Pharma Opioid Deal | Reuters
Purdue Pharma has appealed a December ruling rejecting its bankruptcy reorganization plan and opioid litigation settlement, and the 2nd U.S. Circuit Court of Appeals said it will review the appeal on an expedited basis.
S&K Take: It appears as though the appeal of Judge McMahon’s Purdue decision will move quickly, with Purdue seeking a date in April. The Second Circuit seems inclined to oblige, but no date has been set.
Shock Purdue Pharma Ruling Spreads to Former Ann Taylor Owner’s Bankruptcy | Bloomberg
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The federal judge who denied Ascena Retail Group’s bankruptcy deal, the former owner of women’s fashion brands including Ann Taylor and Lane Bryant, cited its use of third-party release and the recent ruling in the Purdue Pharma bankruptcy.
S&K Take: Meanwhile, the reverberations from Judge McMahon’s decision continue to be felt. We alluded to Judge Novak’s scathing decision last week. Ascena has sought to reconfirm its plan irrespective of the release issue while it continues to consider options on that front. The larger question is whether Judge McMahon’s decision is the catalyst for a nation-wide reconsideration of the non-consensual third-party release issue. If Ascena is any indication, it might be the straw that broke the camel’s back.
