In a recent development, Mallinckrodt has formally announced its decision to initiate another round of bankruptcy proceedings, marking its second Chapter 11 filing since October 2020. The company aims to significantly reduce its total debt by approximately $1.9 billion, according to a press release issued on Wednesday.
Mallinckrodt has entered into this arrangement involving key shareholders and a trust representing victims of the opioid crisis. As part of this strategy, the company is set to make a final payment of $250 million to the aforementioned trust, in addition to the $450 million it has already disbursed. Notably, Mallinckrodt had initially been slated to pay out $1.7 billion as part of a litigation settlement.
This move puts approximately $1 billion in opioid-related settlements from its previous agreement at potential risk of being affected.
Joseph Steinfeld, a legal representative for numerous individuals who claim to be victims of Mallinckrodt’s alleged opioid-related actions, has expressed his dissatisfaction with the company’s approach. He believes that relying on bankruptcy to restructure its promised payments is a deliberate tactic by Mallinckrodt to decrease their obligations. Steinfeld noted that the decision to allow the company extended time to fulfill its settlement obligations was a misstep.
Mallinckrodt’s previous bankruptcy case concluded in June 2022, aligning with its agreement to a $1.7 billion settlement, which was hailed as a fresh start for the company. However, a recent failure to make a $200 million annual settlement payment strongly hinted at the possibility of another bankruptcy filing.
Adding complexity to the situation, Mallinckrodt has been confronted with a class-action lawsuit by investors. This lawsuit accuses the company of disseminating false and misleading statements regarding its financial health.
In a recent statement, Mallinckrodt’s CEO, Siggi Olaffson, conveyed the company’s active assessment of its financial standing and consideration of potential courses of action. Remarkably, Mallinckrodt has communicated its intention to continue its operations in a business-as-usual manner throughout the bankruptcy proceedings.
As of the second quarter of this year, Mallinckrodt possessed a cash reserve of approximately $480.6 million. The company reported a loss of $748 million during the same quarter. In response to these developments, Mallinckrodt’s stock price experienced a significant decline, plummeting by 20% on Wednesday to reach around 46 cents.
The move toward a second Chapter 11 filing within a short span underscores the intricate financial and legal challenges that Mallinckrodt is grappling with, and it will be interesting to observe how the company navigates these hurdles to secure its future stability.
