In the wake of confirmation this month of Purdue Pharma’s controversial reorganization plan that contained third-party press releases in favor of members of the Sackler family, a new bill has been introduced in the Senate to end what some Critics call it “the Bankruptcy Purchasing Forum.” The bill is a companion bill to HR 4193, introduced to the House in June under the nickname “Bankruptcy Venue Reform Act of 2021.” The bills, s ” they were adopted, would generally require (i) individuals to file for bankruptcy in the district where their domicile, residence or principal assets are located; (ii) require debtor companies to file for bankruptcy in the district where their principal assets are located. assets or their principal place of business (or in which a matter is pending regarding an affiliate that owns, controls or holds 50% or more of the outstanding voting securities of, or is the c sponsorship of, the entity that is the subject of the later filed case); (iii) prevent debtor companies from filing solely on the basis of their state of incorporation; (iii) prevent debtors from filing for bankruptcy in a district simply because one of its affiliates has filed on how to file bankruptcy there; and (iv) require courts to transfer or reject cases filed in the wrong district. The bill would further discourage forum shopping by giving no effect to a change in ownership or control of an entity or to a transfer of the principal establishment or principal assets of an entity that takes place within the year. preceding the date of the request or “for the purpose of establishing a place.
While the call for bankruptcy scene reform is not new – similar bipartisan legislation has been introduced in each of the last two sessions of Congress, and before that in 2011 by Sen. John Cornyn (TX) – this time around -this may be different. The recent ruling by the New York Southern District Bankruptcy Court approving third-party releases for members of the Sackler family may have sparked a shift in sentiment among members of Congress (and caught the attention of their attorneys general and constituents ). The decision, which provides for broad releases for family members in return for an overall contribution of $ 4.5 billion to the estate, has drawn criticism from many circles. The US trustee and a number of states have appealed confirmation of Purdue Pharma’s reorganization plan. Indeed, this change of sentiment is evidenced by the recently introduced law of 2021 on the prohibition of the release of non-debtors (S. 2497 & HR 4777) which would prohibit, among other things, the use of non-consensual releases. by third parties of the nature granted to the Sacklers (and any consent would be required in writing by creditors for consensual releases by third parties).
Supporters of bankruptcy reform argue that Purdue Pharma has engaged in forum shopping to bring its complex Chapter 11 case to bankruptcy judge Drain in White Plains, New York. They claim the company chose White Plains because the judge has approved third party discharges in complex bankruptcy cases in the past. Currently, the Bankruptcy Code generally allows an entity to file for bankruptcy in the district where (a) its domicile, principal place of business or principal assets for 180 days immediately preceding the date of the petition (or for a longer portion of such 180 days than in any other district), or (b) a bankruptcy matter involving its subsidiary, general partner or partnership is pending. Purdue Pharma LP, the parent company of the Purdue family of companies, was organized in Delaware and headquartered in Connecticut. Purdue Pharma Inc., however, was organized in New York City, and once it filed its petition, all other affiliates were also granted the right to file there. Under the proposed bill, Purdue Pharma Inc., as a majority owned subsidiary of Purdue Pharma LP, could have filed in any jurisdiction where Purdue Pharma LP met the venue requirements, but not the other way around.
Under the current circumstances, the instant version of bankruptcy site reform legislation should be given a closer look (and perhaps even a vote unlike previous attempts). The arguments of supporters and opponents have not changed, but political emotions and pressures may have changed. We will keep our readers informed of the legislation as it evolves in Congress.