The Top Bankruptcy Cases Of 2019

When the dust settles on 2019, restructuring attorneys will reflect on a hard year for retailers and what may be the beginning of a wave of drug companies to file for bankruptcy as they face massive liabilities for their alleged role in the nationwide opioid epidemic.
 
American retail icons Sears Holding Corp. and Barneys New York Inc. both filed for Chapter 11 this year, with drastically different outcomes. Meanwhile, Insys Therapeutics Inc. and Purdue Pharma LP sought bankruptcy protection with an eye toward negotiating settlements with state and local governments over their alleged role in fueling the opioid crisis.
 
Here, Law360 reflects on developments in some of the most important bankruptcy cases of 2019.
 
Purdue Pharma LP
 
Rumblings of a possible bankruptcy filing from the maker of pain medication OxyContin were heard in the summer of 2019 as the company’s owners — the Sackler family — faced the first trial among thousands of lawsuits against the company and other opioid makers. By September, the company announced it had reached agreement on terms of a settlement with about two dozen states that would end about 2,000 lawsuits against the company and would require a Chapter 11 filing to consummate.
 
Under the deal, the Sacklers would give up their ownership in the company and turn it over to a public beneficial trust, while also contributing $3 billion of their own money to help fund a program to fight the scourge of addiction attributed to Purdue and other drug companies.
 
Though it's far from the only opioid company involved in nationwide litigation over the addiction crisis — including multidistrict litigation — Purdue is the first to hit bankruptcy court with a negotiated settlement framework to deal with its potential liability.
 
“I think everyone is watching this very carefully,” Brian Schartz of Kirkland & Ellis LLP told Law360.
 
As the Chapter 11 case has progressed, some attorneys general who initially supported the settlement framework have pulled back from the deal. Less than a month after Purdue’s petition, Arizona Attorney General Mark Brnovich accused the company of acting in bad faith and undermining the initial terms of the deal, and dropped his support of the settlement.
 
Key to the bankruptcy case was an adversary suit filed by Purdue to stay the opioid litigation and give the company some breathing room to continue settlement negotiations with the nonconsenting states, municipalities and Native American tribes serving as plaintiffs in the more than 2,600 suits against Purdue. A New York bankruptcy judge granted the company a preliminary injunction stopping the suits in early November.
 
Insys Therapeutics Inc.
 
Insys, the Massachusetts-based maker of powerful fentanyl-based pain medication, retreated into Delaware bankruptcy court in June as its leaders faced trial on criminal charges related to their roles in a prescription kickback scheme.
 
The drug at issue — Subsys — was an oral spray approved for the treatment of breakthrough cancer pain on end-stage patients for whom more traditional pain therapies are no longer effective. The criminal charges alleged that Insys executives instituted marketing programs that encouraged doctors to prescribe the drug for off-label purposes as innocuous as tooth pain.
 
The company itself had already agreed to plead guilty to criminal charges related to the scheme and pay a $225 million penalty.
 
Insys was able to sell off its product lines, including Subsys, through Chapter 11 sales and recently received bankruptcy court approval for a plan disclosure statement. Through a negotiated settlement, the company will make distributions to different creditor classes in multiple stages.
 
Under the plan, the claims will be split into a group of private claimants representing insurance companies, hospitals and trade creditors, and a group of public claimants representing the U.S., individual states, Native American tribes and county and local governments that have claims arising from costs associated with responding to the national opioid epidemic.
 
The distribution structure contemplated in the filed plan calls for each group to split equally the first $38 million in recoveries, with the public group receiving 82.5% of distributions after that. Two trusts will be created under the plan — the Insys Liquidating Trust and the Victims' Restitution Trust — that will provide recoveries to creditors and individual opioid injury claimants, respectively.
 
A confirmation hearing on the plan is scheduled for late January.
 
PG&E Corp.
 
Catastrophic California wildfires traced back to equipment owned and operated by utility Pacific Gas and Electric Co. drove the company into bankruptcy in January as a way to deal with its $30 billion liability for property damage and personal injury claims. The company came to court without a deal in place, but was under the gun to come to an agreement with its many creditors and claimants before June 2020 so that it could participate in a statewide wildfire insurance fund with $21 billion available for disbursement.
 
According to Schartz, the PG&E filing stands in stark contrast to the recent prevalence of prepackaged Chapter 11 cases filed by large corporations.
 
“It’s just, ‘We’re going to go in and figure it out,’” he said. “It has been a slugfest. It has been expensive and it’s going to take a lot of time. We just don’t have many flings like that anymore.”
 
The debtor took a big step toward resolving claims in early December when it reached a deal with tort claimants and individual fire victims that would pay them $13.5 billion. PG&E earlier reached a multibillion-dollar settlement with local governments and insurers.
 
Final work is being done on its Chapter 11 plan proposal, which should be filed in early 2020.
 
Sears Holdings Corp.
 
Iconic retailer Sears worked its way to a Chapter 11 sale in February that saw former CEO Eddie Lampert buy more than 400 Sears and K-Mart locations for $5.2 billion, overcoming opposition to the sale from unsecured creditors and federal regulators.
 
The sale preserved more than 45,000 jobs and gave the 126-year-old company a shot at survival post-bankruptcy.
 
A key part of the sale order was the preservation of claims against Lampert that are being pursued by the restructuring subcommittee of the Sears board of directors. In an April suit, the subcommittee accused Lampert, his hedge fund and other large stockholders of spinning off valuable company assets for grossly low prices.
 
That litigation is ongoing.
 
Once one of the nation's largest retailers, Sears entered bankruptcy on Oct. 15 to reshape its physical footprint and reduce a debt load of more than $11 billion created by years of losses, store closings and unsuccessful efforts to adapt to a changing retail world.
 
Barneys New York Inc.
 
Legacy retailer Barneys New York also ran into solvency issues this year after having successfully restructured its balance sheet twice before, in 1996 and 2012. It came to court in August with nearly $200 million of secured debt and another $100 million in unsecured trade debt.
 
Changing consumer trends and rising rent obligations caused its financial troubles as it deals with the same industry headwinds that have doomed other retailers in recent years.
 
As its Chapter 11 case progressed, it became clear that a buyer who would continue operating the luxury brand would not emerge, and in November it received court approval for a $271 million sale to Authentic Brands Group. The buyer planned to liquidate the remaining stores and then license the Barneys brand name to operate in-store boutiques at former competitor Saks Fifth Avenue.
 
Chris Greco of Kirkland & Ellis LLP told Law360 that sometimes the name of a legendary retailer is worth more to a buyer than the physical operations.
 
“I think what you’re seeing is people do value some of these names and the intellectual property, but when you try to find the going concern buyer that wants the exact store footprint or some subset of the existing store footprint, that’s where [buyers] are just really hesitant,” he said.