Relevant Documents:
United Equities Objection
Alta Advisers Objection
In a confirmation objection filed Tuesday, Sept. 26, second lien creditor United Equities attacks $80 million in prepetition RSA fees and $30 million in
DIP backstop premiums paid by the Mallinckrodt debtors as vote buying and evidence of bad faith that justifies rejection of the debtors’
prepackaged plan. United Equities also hints that a
$250 million prepetition payment to the “
unsecured” Opioid MDT II trust created by the debtors’ prior chapter 11 plan was improper.
United Equities and shareholder Alta Fundamental Advisers were the only parties to file substantive objections to the debtors’ prepackaged plan by a
Sept. 26 deadline. The confirmation hearing is
slated for Wednesday, Oct. 4, at 1 p.m. ET.
Alta calls the prepetition RSA fees, DIP premium and 10% equity management incentive program under the plan “windfalls” for “insiders” while shareholders that “believed the story Mallinckrodt told upon its
emergence” from its
prior bankruptcy in June 2022 are “left barren.”
United Equities claims to hold $17.5 million in second lien claims and says it requested to participate in prepetition RSA discussions but was rebuffed by the
ad hoc crossover group steering committee. According to United Equities, the members of the steering committee who negotiated the RSA “were able to secure for themselves significant benefits that were not offered to other Second Lien Creditors.”
Specifically, United Equities points to an $80 million prepetition “Forbearance and Settlement Payment” to the
three ad hoc steering
committees supporting the plan. Assuming the members of the ad hoc crossover group steering committee hold 51% of the second lien claims, they would have received approximately $17.4 million of this amount on account of their second lien claims, according to United Equities. “Critically,
other Second Lien Creditors were not entitled to those fees under the RSA,” United Equities points out.
The debtors also agreed to pay members of the ad hoc crossover group steering committee holding first lien claims a share of $30 million in DIP backstop premiums, United Equities continues. According to United Equities, the amount of the fees paid to members of the ad hoc crossover group steering committee have not been disclosed by the debtors, and the steering committee members have refused to provide that information. “Critically, because United Equities is not a First Lien Creditor, it did not have the option to become an Additional Backstop Party under the RSA and therefore had no reason to join it,” United Equities says.
“Buying the support of the three Steering Committees with an
$80 million cash payment on the eve of bankruptcy while Second Lien Creditors are slated to receive a
11-16% recovery under the Plan is the epitome of an unfair process and inherently inconsistent with the objectives and purposes of the Bankruptcy Code,” United Equities argues.
“If the Court countenances this conduct,” United Equities suggests, “nothing will stop debtors in future cases from escaping the guardrails of the plan confirmation requirements under the Bankruptcy Code by cutting side-deals with their constituents to obtain their votes in support of a plan,” eliminating the principle of equal treatment for creditors of similar priority and sanctioning “a tainted vote.”
Alta contends that the debtors’ chapter 22 filing was “unnecessary and avoidable, assuming Mallinckrodt was being truthful in its public disclosures.” “There were options,” Alta continues, but insiders “took the lenders’ invitation to proceed in their mutual best interests with no regard for public purchasers of Mallinckrodt stock - not to mention the opioid-ravaged communities that Mallinckrodt had promised to compensate.”
Former parent Covidien filed a
limited objection to the plan to clarify that the nondebtor plan releases do not eliminate its defenses and counterclaims in the MDT II trust’s $1.6 billion
fraudulent transfer suit over the debtors’ 2013 spinoff.
Airgas Therapeutics and
Air Liquide SA filed a similar objection to preserve their defenses and counterclaims in patent litigation with the debtors. Johnson & Johnson filed a
limited objection to preserve its defenses and counterclaims against the debtors in opioid litigation.