In an order yesterday in the appeal of the Purdue Pharma bankruptcy case, Judge McMahon invited briefing, due Monday at 9:00 a.m., on whether the Sackler family, which contributed $4.5 billion to the Purdue estate in exchange for releases, abused the bankruptcy system by distributing excessive profits to themselves in the years immediately prior to the bankruptcy:

From 1995-2007, Purdue only “upstreamed” enough money to the Sacklers to allow them to pay taxes and retain a relatively modest dividend for themselves. According to information provided by the Debtor, the Sacklers used 90% of Purdue’s upstreamed earnings were used to pay taxes; just 10% of those distributions were retained by the family. Purdue kept the rest of its earnings in treasury. From 2008-2018, this changed. During that period only 44% of the money that Purdue upstreamed to the Sacklers was needed to pay taxes on Purdue’s earnings. 56% of those distributions were retained by the family.

This change—regardless of what occasioned it—resulted in Purdue’s having far less in its treasury when it declared bankruptcy than would have been the case had the family adhered to the prior distribution pattern. I am struggling with whether this is something that a court can/should take into account in deciding whether the releases on which the Sacklers conditioned their financial contribution to the Debtors’ estate are “abusive” . . . —especially in light of evidence in the record that the Sacklers were concerned about litigation risk during those later years and were being advised to adopt an “aggressive” plan of cash distribution during that period.

I can’t find any guidance in prior cases because, as far as I can tell, nothing remotely similar happened in any prior case . . . .  I would very much appreciate your weighing in on this issue . . . .

Further reporting from The Wall Street Journal is here.