Lannett: U.S. trustee objects to pre-packaged Chapter 11 plan

By Sarah Lizee

Olympia, Wash., June 5 – Lannett Co., Inc.’s pre-packaged Chapter 11 plan drew an objection from Regions 3 and 9 U.S. trustee Andrew R. Vara, according to documents filed Sunday with the U.S. Bankruptcy Court for the District of Delaware.

Vara said that even though public equity holders and holders of claims in certain classes are set to receive no distribution, have no right to vote, and are deemed to reject the plan, the debtor seeks to deem all of them to have consented to release their direct claims against non-debtor third parties unless they opt out by the deadline.

He said the opt-out mechanism, which provides for negative (rather than affirmative) consent, is especially inappropriate because the “deemed to reject” classes will receive no consideration whatsoever for the releases that will be imposed on them.

And, since most of the stock of the debtor is held in street name, the debtors will be sending the opt-out forms to brokers instead of directly to stockholders. Vara said there will be no assurance that each beneficial shareholder will receive the opt-out form, let alone receive it in enough time to execute it and return it to the broker, or that upon receipt, the broker will timely communicate such opt-out to the debtors’ claims agent.

The U.S. trustee said the debtors also haven’t demonstrated any necessity for their equity or claim holders to release the non-debtor released parties.

Vara also took issue with the overly wide scope of the type of claims that will be released by way of the debtor releases and third-party releases.

The U.S. trustee also said the plan is inconsistent in its treatment of the general unsecured creditors in class 5, and other impaired creditors.

A hearing on the plan is scheduled for June 8.

Based in Trevose, Pa., Lannett develops, manufactures, packages, markets and distributes generic pharmaceutical products. The company filed bankruptcy on May 2 under Chapter 11 case number 23-10559.

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