Insys: U.S. Trustee objects to plan of liquidation release provisions

By Caroline Salls

Pittsburgh, Jan. 7 – The U.S. Trustee overseeing Insys Therapeutics, Inc.’s Chapter 11 case objected to confirmation of the company’s plan of liquidation, according to a Monday filing with the U.S. Bankruptcy Court for the District of Delaware.

Regions 3 and 9 U.S. trustee Andrew R. Vara said in his objection that holders of equity interests are slated to receive no distribution under the plan, have no right to vote on the plan and are deemed to reject it.

Despite this treatment, Vara said Insys is seeking approval to deem all shareholders as having consented to providing third-party releases to non-debtor parties unless they return a form opting out of the releases by the voting deadline.

However, Vara said the court has previously ruled that “any third-party release is effective only with respect to those who affirmatively consent to it by voting in favor of the plan and not opting out of the third-party releases.”

The U.S. Trustee said requiring affirmative consent for the shareholders in these cases is important because the shareholders are not receiving any distribution under the plan, and therefore no consideration for giving any releases and because requiring an affirmative expression of consent helps to ensure there is true consent, rather than consent assumed by silence, which could be caused by factors such as the opt-out notice being wrongly addressed or misdelivered.

Likewise, Vara also objected to deemed consent from those holders of general unsecured claims who do not return a ballot.

“Like the shareholders, silence from a creditor could simply mean the solicitation package never reached them,” the objection said.

In addition, Vara questioned a plan provision that provides an $800,000 administrative claim to representatives of holders of state claims and municipality/tribe claims “based on a theory of substantial contribution.”

The U.S. Trustee said the representatives have not proven that they acted in their own self interest “and they are unable to show that their actions were designed to benefit the estate.”

The plan confirmation hearing is scheduled for Jan. 16.

The specialty pharmaceutical company is based in Phoenix. The company filed bankruptcy on June 10, 2019 under Chapter 11 case number 19-11292.

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