Bankruptcy may not absolve all of a company’s liabilities

On Behalf of | Sep 30, 2019 | Firm News |

More than 2,000 lawsuits were filed against the controversial pharmaceutical company that promoted OxyContin, the prescription pain pills at the center of the nation’s opioid crisis. These lawsuits were all combined into one legal action for the federal court in Ohio to decide. Several attorneys general from states that claim to have been devastated by residents’ deaths from the use of opioids have agreed to enter into a nearly $10 billion settlement with the company.

To protect its assets, however, the company filed a Chapter 11 petition seeking bankruptcy protection. While the company’s settlement is tentative, bankruptcy may not fully absolve its liabilities, as reported by USA Today. At issue is whether the company’s owners and founders are responsible for paying any damages resulting from the outcome of the lawsuit. If a jury finds they are personally liable, the company’s bankruptcy may not necessarily lead to a discharge of the monies owed toward a settlement.

Regarding bankruptcy, other large companies have followed a similar tactic to avoid or mitigate the damages stemming from large and costly lawsuits. Beginning in the 1980s, asbestos companies were filing for bankruptcy when faced with suits involving their products’ health hazards. More recently, the devastating west coast wildfires attributed to negligence by a California utility have caused the company to file.

It is not uncommon for a company’s management to enter into a bankruptcy protection mistakenly believing that it will discharge all of its debt obligations or settlement agreements. Creditors have rights in protecting their assets, which is the full amount of money owed on outstanding loans and other commercial obligations. When a company files for a Chapter 11 bankruptcy, it is introducing a plan of reorganization to the court where a trustee might oversee how its debts get repaid. A creditor may still file a claim with the court to recover any of its outstanding equity.

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