Mallinckrodt statement draws objections from U.S. trustee, creditors

By Sarah Lizee

Olympia, Wash., May 19 – Mallinckrodt plc’s disclosure statement for its Chapter 11 plan of reorganization drew objections from the U.S. trustee overseeing the case, the official committee of unsecured creditors and an informal group of first-lien noteholders, according to documents filed Tuesday with the U.S. Bankruptcy Court for the District of Delaware.

“Unfortunately for the debtors, the [restructuring support agreement], and consequently the current version of the plan, are premised on three fundamental and inescapable flaws that must be addressed before the debtors commence a futile, expensive and litigious solicitation process,” the official committee of unsecured creditors said in its objection.

The committee said the various pre-petition agreements reached and incorporated into the RSA and plan, including the $1.6 billion opioid settlement, the $260 million Acthar settlement agreement, and the agreement to pay the unsecured notes consideration, along with the plan consideration proposed to be doled out in connection with these agreements, appear to be “entirely unmoored” to present plan value or a demonstrable debtor-by-debtor waterfall.

“In fact, the debtors have not disclosed whether these deals were ever tied to a conception of plan value in the first instance or if they were simply invented out of whole-cloth in some tortured notion of the debtors’ ‘ability to pay’ for the liabilities they were incurring,” the committee said.

Second, the debtors’ specialty generics business, where the opioid liabilities reside, can’t fund the opioid settlement necessary to satisfy the number of opioid claims asserted against the specialty generics debtors, the committee added.

“Indeed, the $1.6 billion value of the opioid settlement exceeds the combined enterprise value of all specialty generics debtors,” the committee said.

“To solve this problem, the plan improperly siphons hundreds of millions of dollars from the far more valuable specialty brands business, where many of the [committee’s] constituents possess claims, to fund the opioid settlement, notwithstanding that the debtors undertook great pains to separate the specialty generics debtors from the specialty brands debtors in the years leading up to the petition date, and these Chapter 11 cases have not been, nor should they be, substantively consolidated.”

Third, the plan seeks to grant the debtors’ directors and officers with broad releases from all pre-petition claims arising from their “questionable and controversial stewardship” of the debtors’ businesses prior to the commencement of even a perfunctory internal investigation into potential management misconduct and without providing the estates with any consideration in return, the committee stated.

Regions 3 and 9 U.S. trustee Andrew R. Vara said in his objection that the disclosure lacks important information, including the expected dollar amount of claims in each class and their projected recovery under the plan.

Vara also noted that while the company seeks authority to file a plan supplement seven days before the plan voting deadline, this is not enough time for parties to review the documents that are expected to be included in the supplement.

He also said that the statement lacks information relating to the justification for the nonconsensual releases as applied to a broad swath of non-debtor third parties.

The informal group of first-lien noteholders agreed that the statement lacks information, particularly with regard to the plan’s “substantial obstacles to confirmation” in light of the disputes arising from the plan’s treatment of 10% first-lien noteholders.

The group said the plan proposes to reinstate the first-lien notes but without paying the applicable premium that is now due on the notes.

“The debtors are not entitled to treat the first-lien noteholders as unimpaired – and thus disenfranchised from voting on the plan – while at the same time refusing to pay them a fee that is indisputably due and owing under the governing contract,” the group said in its objection.

“At a minimum, the debtors’ proposed reinstatement will, for that reason, face substantial challenges at confirmation,” the group stated. “Yet the disclosure statement mentions nothing about this dispute.”

A hearing on approval of the disclosure statement is scheduled for May 26.

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.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.