Purdue Pharma Chapter 11 plan confirmation overturned after appeal

By Sarah Lizee

Olympia, Wash., Dec. 17 – Purdue Pharma, LP’s Chapter 11 plan confirmation was overturned on Thursday by the U.S. Bankruptcy Court for the Southern District of New York, according to a statement from the company.

Purdue said it plans to appeal the court’s decision, which vacated its own September order that had previously confirmed the plan.

The company said it will try to build consensus around a plan that will deliver billions of dollars to the American people for opioid abatement.

“The current plan enjoys overwhelming support, including from every one of the many ad hoc creditor groups in the case and more than 95% of Purdue’s over 120,000 voting creditors, including 43 states and territories,” the company said in the statement.

“Fewer than 20 stakeholders appealed,” Purdue added.

However, one appeal came from Region 2 U.S. trustee William K. Harrington, which had said his appeal also related to the shareholder settlement agreement under the plan.

Before the plan was confirmed, Harrington had objected to the plan based on its “extraordinarily broad” nonconsensual third-party release of the Sackler family and other non-debtors by extinguishing non-debtors’ direct claims against them.

Purdue said Thursday that the confirmation had been overturned due to those releases.

“Contrary to more than 30 years of governing precedent approving third-party releases in appropriate circumstances, the district court held that third-party releases are never authorized by the bankruptcy code outside of the asbestos context,” Purdue said.

As previously reported, the September confirmation order was made after a lengthy trial that took place over three weeks. The plan had drawn multiple objections beforehand.

Notably, during the trial, the bankruptcy court had materially narrowed the scope and reach of the releases being provided to the shareholders under the settlement.

Purdue had said that as the plan becomes effective, billions of dollars in value would begin to flow into a national opioid abatement trust (NOAT) established with a mission to fund opioid crisis abatement efforts in satisfaction of the claims brought by states and localities, as well as to opioid abatement trusts established for the benefit of other creditors such as Native American tribes, hospitals, third-party payors, and children with a history of neonatal abstinence syndrome (NAS) and their guardians.

An additional $700 million to $750 million would be provided to trusts that will make distributions to qualified personal injury claimants.

Purdue would cease to exist, and substantially all of its operating assets would be transferred to a newly formed company with a public-minded mission of addressing the opioid crisis, the company said.

The new company would be owned primarily by NOAT, with the tribe trust holding a minority interest. The new post-emergence company will also develop and distribute millions of doses of opioid addiction treatment and overdose reversal medicines.

The Sackler families would have no involvement in the new company and would be paying $4.325 billion, in addition to $225 million already paid to the U.S. Department of Justice, into the estates.

The new company would be governed by new independent board members selected by the stakeholders.

Funding for the trusts would come primarily from three sources, including an initial cash distribution from the company of more than $500 million immediately upon emergence from bankruptcy; about $1 billion expected to be generated by the assets and the operations of the new post-bankruptcy pharmaceutical company through the end of 2024, for a projected total of roughly $1.5 billion, plus substantial additional recoveries expected from insurance claims; and the $4.275 billion in cash payments by the Sackler families.

In addition to the cash funding, the company estimated that about $4 billion in value could also be provided through the new company’s public health initiatives.

According to the disclosure statement, holders of secured claims and other priority claims would be paid in full in cash.

Holders of Avrio and Adlon general unsecured claims would receive payment in full in cash.

Holders of other general unsecured claims are disputed. Except to the extent a holder and the debtors agreed to different treatment, holders would receive their pro rata share of the other general unsecured claim cash, which amounts to $15 million.

Intercompany claims would be reinstated or canceled with no distribution.

Holders of other subordinated claims and PPLP and PPI interests would not receive any distribution.

Purdue Pharma is a Stamford, Conn.-based drug manufacturer. It filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of New York on Sept. 15, 2019 under case number 19-23649.

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