What happens if Purdue Pharma declares bankruptcy?

OxyContin maker Purdue Pharma is considering filing for bankruptcy — a move that could complicate the legal battle over who's responsible for the opioid crisis, according to a STAT news report.

The drugmaker reportedly is weighing a bankruptcy filing in the face of the thousands of lawsuits claiming it misled physicians about OxyContin's safety while promoting the addictive drug and fueling the opioid crisis. Purdue Pharma has denied all the allegations.

While hundreds of cities, countries, tribes and states have sued Purdue Pharma, most of the lawsuits have been consolidated in a federal court in Ohio in what is known as multidistrict litigation. Plaintiffs' attorneys have compared the case to the one against the tobacco industry two decades ago that resulted in a $246 billion settlement.

The bankruptcy filing would throw a wrench into the progression of the lawsuits by halting them and likely allowing the drugmaker to negotiate claims under the supervision of a U.S. bankruptcy judge. Bankruptcy filings are used to ensure that the company declaring bankruptcy can preserve its value while giving it more time to negotiate.

According to legal experts cited by STAT, the bankruptcy filing gives Purdue Pharma the option to negotiate or litigate settlements, which could prove beneficial for the company.

Once a company files for bankruptcy, it has to disclose all of its assets and debts. The first people to get paid are secured creditors, which includes a bank that loaned the drug company money. Only assets left over after secured creditors are paid can be used to pay other creditors.

Typically, plaintiffs in lawsuits are unsecured creditors in bankruptcy court, and the bankruptcy judge decides how much they are owed. The claims are then tallied, and assets are divided evenly among all creditors.

STAT explains, "For example, a judge decides a particular creditor is owed $10, but the whole pot of unsecured creditors' claims amounts to $100 and the debtor only has assets of $10, that creditor is going to get $1."

The idea behind bankruptcy court is to resolve claims faster than in civil court and to get everyone a piece of what they are owed, even if it's a fraction of what they sought.

The multidistrict litigation in Ohio is challenging in that Purdue is just one defendant alongside other opioid makers. While a bankruptcy judge could put the entire multidistrict litigation on hold, it is possible that the claims against Purdue would move to bankruptcy court, while the lawsuit against the other drugmakers continues in the Ohio federal court.

In some cases, lawsuits against companies that have filed bankruptcy are allowed to proceed if they are close to being resolved or are serving as test cases, according to the report.

Read the full report here.

 

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