Debt restructuring plan for drug maker Mallinckrodt approved by High Court

The High Court has approved a debt restructuring scheme for pharmaceutical firm Mallinckrodt, which is Dublin-based but US-run.

Confirmation of the proposals by the Irish courts was one of 23 preconditions attached by a US court to the long-negotiated debt reduction plan, some of which are yet to be completed in other jurisdictions.

Mr Justice Michael Quinn made the orders approving the scheme of arrangement on the application of examiner Michael McAteer of Grant Thornton, represented by Kelley Smith SC.

The Irish scheme is due to become binding on a date next month, to coincide with the effective date of the US plan. This will occur when all of the 23 preconditions have been satisfied or waived, the judge noted.

There are many “moving parts” in various jurisdictions to ensure the conditions are met, and delay by the Irish court could put at risk the restructuring as a whole, the judge said.

Mallinckrodt employs 120 people in its facility in Blanchardstown in west Dublin, working in areas including research and development, manufacturing, supply chain management and other support functions.

The opioid manufacturer is pursuing a US court-approved Chapter 11 reorganisation that would set up a $1.6 billion (€1.5 billion) trust to resolve opioid-related claims with US states, local governments and private individuals. It also agreed to pay the US government $260 million to absolve a claim that it underpaid rebates on Acthar Gel, a hormone treatment to relieve inflammation.

The reorganisation plan will reduce its debt by $1.3 billion. Existing shares will be wiped out, while guaranteed unsecured bondholders are exchanging debt for ownership in the reorganised business.

Delaware judge John Dorsey confirmed Mallinckrodt’s Chapter 11 plan in February. A number of appeals against his orders are pending before the US courts.

The Irish court should not simply “rubber-stamp” the US court’s decision, said Mr Justice Quinn, and it must satisfy itself that the test under Irish law has been met.

Creditor support

The judge noted there was “overwhelming support” among creditors for the proposals, according to a vote earlier this month.

Of those who participated in the hearing of the petition, only one party, insurance company Attestor Limited, objected, regarding the plan as “unfair and inequitable”. He said it had filed an appeal in the US against Judge Dorsey’s confirmation of the plan and acknowledges this is “ultimately a US law fight”.

The petition before the Irish court made comparisons between the outcomes for the company under various hypothetical outcomes, such as liquidation. Mr Justice Quinn said the evidence was that a wind-up scenario would mean creditors would not receive any dividend and approval of the scheme would result in a “significantly better outcome” for them.

He said the plan would give the company a “good prospect of operating on a sustainable basis in the future”. The judge was satisfied the proposals met the test under Irish law and were fair and equitable and not prejudicial to any party.

He said the debt restructuring was in the best interests of the company and for that reason he should affirm the proposals.

The case will be mentioned before the court on a date next month.