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Bottles of Purdue Pharma OxyContin medication. Photo: George Frey/Getty Images

A federal judge’s decision to reject Purdue Pharma’s multibillion-dollar opioid settlement shines a light on a controversial part of bankruptcies that quietly helps grease the wheels for complicated reorganizations.

Catch up fast: At issue are “non-debtor releases” provided to Purdue's owners, the Sackler family.

  • U.S. District Judge Colleen McMahon said the releases — agreements that shield the family from future litigation — can’t legally be granted by a bankruptcy court.

Why it matters: If the Supreme Court (where the case may ultimately be headed) decides these releases aren’t allowed, a key part of bankruptcy sausage-making disappears. That means that complex deals involving multitudes of brawling creditors may be even harder to hammer out.

State of play: The Sacklers are contributing $4.5 billion as part of a deal for Purdue to reorganize and emerge from bankruptcy with new owners and a different name. Those billions will go toward resolving existing litigation and to communities fighting opioid abuse — in exchange for the releases.

  • Releases like these also drew ire in the bankruptcies of Boy Scouts of America and USA Gymnastics — two cases that similarly stemmed from massive legal liabilities the organizations couldn’t afford.
  • In the bankruptcy world, releases are not uncommon as a way to encourage investors to contribute funds toward the reorganization — but critics say it’s a way for those investors to stamp out their legal liability without filing for bankruptcy themselves, as Reuters reports.

"This, if it stands, will completely upend Chapter 11 practice. It effectively takes non-debtor releases off the table,” Lindsey Simon, an assistant law professor at the University of Georgia's law school, tells Reuters, of McMahon’s ruling.

  • A group of Democratic Senators also want to all but do away with non-debtor releases: it’s in a bill they proposed earlier this year.

The bottom line: Releases can feel ethically murky, but they're part of the machinery that allows companies to emerge from bankruptcy faster, and prevents the value destruction that years of litigation can cause.

Go deeper

Dan Primack, author of Pro Rata
Jan 7, 2022 - Economy & Business

Judge opens door for bankruptcy blame suits

Illustration: Brendan Lynch/Axios

Corporate directors often ask for personal liability releases when deals go bad and debt needs to be restructured. But they may need to become much more careful about what they do next.

Driving the news: A Delaware judge recently refused to dismiss a breach of fiduciary loyalty claim against three partners of private equity firm Wellspring Capital Management, related to their ownership of a gun retailer that went bankrupt in 2019.

University of Michigan reaches $490M settlement in sex abuse case

Jon Vaughn, a former University of Michigan and NFL football player, speaks at a press conference in Ann Arbor, Mich., in June 2021. Photo: Bill Pugliano/Getty Images

The University of Michigan on Wednesday reached a $490 million settlement with over a thousand survivors who allege that they were sexually assaulted by a former physician in the school's athletic department.

Driving the news: "It's been a long and challenging journey and these survivors have refused to remain silent," attorney Parker Stinar said Wednesday.

4 hours ago - Technology

3D printing's next act: big metal objects

Chief Scientist Andy Bayramian makes modifications to the laser system on Seurat's 3D metal printer. Photo courtesy of Seurat Technologies.

A new metal 3D printing technology could revolutionize the way large industrial products like planes and cars are made, reducing the cost and carbon footprint of mass manufacturing.

Why it matters: 3D printing — also called additive manufacturing — has been used since the 1980s to make small plastic parts and prototypes. Metal printing is newer, and the challenge has been figuring out how to make things like large car parts faster and cheaper than traditional methods.