Leave it to the Sacklers to spoil the party for private equity. The family behind Purdue Pharma, the creator of the opioid OxyContin, believed $4.5bn was enough to buy its way out of trouble. It had agreed to pay that amount to settle its potential liability stemming from the painkiller crisis.
But on Thursday night, a New York federal judge overturned the Purdue bankruptcy settlement, ruling that a provision protecting the controlling Sackler family from civil liability was invalid. That has wider ramifications.
The practice of exchanging money for a prohibition on future legal claims has been popular in product liability bankruptcies, as well as in cases where private equity firms have been accused of asset stripping.
Thursday’s ruling makes getting out of legal peril by writing cheques much trickier. But the big winners may not be victims of alleged misconduct but rather lawyers who profit from endless, messy cases.
Lawyers for Purdue Pharma told claimants in the bankruptcy that $4.5bn was a huge victory, allowing money to be paid out quickly, with little friction. More than 90 per cent of the key stakeholders signed up to the deal.
The handful of holdouts — led by fewer than 10 states and the US Department of Justice — said the Sacklers’ pockets were billions deeper. They argued the family members behind the company had got the protection of the bankruptcy system without filing for bankruptcy themselves.
This may be narrowly true. However, the parties who would have soon accessed the $4.5bn pot in an orderly fashion now face an uncertain litigation path. Moreover, Purdue victims may have to fight among themselves and with lawyers to get the family’s money before it runs out.
Private equity firms and big companies like Purdue have advisers skilled at tilting the game of financial restructurings to their benefit. But it is unfortunate that critics of the current system have not articulated a better system for the aggrieved.
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