Mallinckrodt plan of reorganization draws objection from U.S. trustee

By Sarah Lizee

Olympia, Wash., Oct. 13 – Mallinckrodt plc’s Chapter 11 plan of reorganization drew an objection on Wednesday from Regions 3 and 9 U.S. trustee Andrew R. Vara, according to a filing with the U.S. Bankruptcy Court for the District of Delaware.

Under the plan, opioid claims will be channeled to a $1.73 billion opioid trust, while general unsecured claims will receive consideration of $135 million cash and certain assigned causes of action, with trade claims sharing in a $50 million cash pool. Shareholders will receive no recovery.

The plan contains two separate third-party releases. First, holders of opioid claims are deemed to release those parties defined as “protected parties” under the plan, even if the claims being released are not related to the opioid claims.

“These ‘releases’ are completely non-consensual,” the U.S. trustee said in his objection.

Second, equity holders and holders of only non-opioid claims are deemed to grant releases of “released parties,” unless they return an opt-out form. Non-opioid claimants who vote in favor of the plan and unimpaired claimants are not permitted to opt-out of such releases.

Vara said he objects to the plan because the bankruptcy code does not permit non-consensual releases to be imposed on one non-debtor for claims it holds against another non-debtor.

“Even if the non-consensual opioid claims release were potentially permissible under third circuit law, the debtors have failed to justify such release,” Vara said.

Dublin-based Mallinckrodt develops, manufactures, markets and distributes specialty pharmaceutical products and therapies. The company filed Chapter 11 bankruptcy on Oct. 12, 2020 under case number 20-12522.

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