Mallinckrodt wins approval of restructuring plan, opioid deal

Bottles of prescription painkillers Hydrocodine Bitartrate and Acetaminopohen. REUTERS/George Frey
  • Judge overrules objection to executive's legal protections
  • Plan cuts $1.3 billion in debt

(Reuters) - Pharmaceutical company Mallinckrodt PLC on Thursday won court approval of its reorganization plan, which includes a $1.7 billion settlement of opioid-related litigation, bringing its 16-month bankruptcy close to an end.

U.S. Bankruptcy Judge John Dorsey in Wilmington, Delaware signed off on the plan in a 103-page written decision. In addition to settling thousands of lawsuits accusing it of deceptively marketing its opioids, the plan allows Mallinckrodt to reduce $5.3 billion in debt by $1.3 billion and hands control of the reorganized company to creditors.

CEO Mark Trudeau said in a statement on Thursday that the company is “pleased to have achieved” this milestone.

“We have made important progress and are now turning to the final phases in a reorganization process designed to reduce debt, address litigation claims and position the company for long-term success,” he said.

Mallinckrodt filed for bankruptcy in October 2020 to resolve more than 3,000 lawsuits from states, local governments and private individuals who accused the company of fueling the opioid epidemic through deceptive marketing, including by playing down the risks of addiction and abuse.

The company won the support of committees representing junior creditors and opioid claimants, which had long opposed the plan, for the deal in September. Nearly all U.S. states backed it as well.

In approving the plan, Dorsey overruled objections raised by the state of Rhode Island, pharmaceutical company Sanofi, certain insurers and shareholders.

Rhode Island had argued that Mallinckrodt could not use its bankruptcy to give Trudeau, who is not bankrupt himself, legal protections known as non-debtor releases, shielding him from lawsuits. The state had accused Trudeau of contributing to Rhode Island's opioid epidemic through what it said was negligent oversight of opioid sales. Mallinckrodt did not immediately respond to a request for further comment.

“If I were to sustain Rhode Island’s objection, it would certainly be a case of the tail wagging the dog,” Dorsey said, adding that “excepting one creditor in the manner Rhode Island proposes would effectively enable a single creditor with a relatively small claim to hold up a $5 billion bankruptcy.”

Joseph Rice of Motley Rice, a lawyer for Rhode Island, said on Thursday that his team would evaluate the opinion and determine what its options are.

The dispute mirrors one in Purdue Pharma's bankruptcy, in which several states argued that members of the Sackler family, who had owned the OxyContin maker, should not receive such releases. A New York judge tossed a bankruptcy court's approval of the releases in December, saying the court did not have the authority to grant them.

Purdue and the Sackler family members are nearing a deal with those states to potentially increase the money they've agreed to contribute in exchange to a settlement, a mediator said this week.

The case is In re Mallinckrodt PLC, U.S. Bankruptcy Court, District of Delaware, No. 20-12522.

For Mallinckrodt: Christopher Harris, George Davis, George Klidonas, Andrew Sorkin, Anupama Yerramalli, Jeff Bjork, Elizabeth Marks and Jason Gott of Latham & Watkins; and Mark Collins, Robert Stearn Jr, Michael Merchant, Amanda Steele, and Robert Maddox of Richards, Layton & Finger

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Maria Chutchian reports on corporate bankruptcies and restructurings. She can be reached at maria.chutchian@thomsonreuters.com.