Mallinckrodt Inching Closer to Second Bankruptcy Filing

Mallinckrodt has publicly disclosed its imminent initiation of the next phase of bankruptcy proceedings, set to commence within the coming days. The company had previously hinted at its intention to pursue this course of action earlier this month.

In a press release issued on Wednesday, the company outlined its objective of substantially reducing its overall debt by approximately $1.9 billion. This marks Mallinckrodt’s second endeavor to file for Chapter 11 protection since October 2020. To facilitate this process, the company is entering into an arrangement with an opioid victim’s trust, in addition to collaborating with major shareholders.

In conjunction with the $450 million it had previously allocated to the trust, Mallinckrodt is poised to make a final contribution of $250 million as a component of this plan. Previously, it had been projected that the company would need to disburse $1.7 billion as part of a legal settlement.

However, there exists a potential jeopardy to the company’s prior agreement involving opioid-related settlements that aggregate to nearly $1 billion.

Joseph Steinfeld, a legal representative advocating for thousands of individuals purportedly impacted by opioids produced by Mallinckrodt, articulated that the company’s bankruptcy filing serves the purpose of diminishing the amount it had committed to pay to the victims.

Steinfeld further conveyed that affording Mallinckrodt several years to fulfill the settlement agreements had been an erroneous decision. “It would have been preferable to receive a lump sum from the company,” he remarked. “While we were not inclined to wait that long, we consented to the delay in an endeavor to aid the company.”

Mallinckrodt’s preceding bankruptcy effort achieved success in June 2022, coinciding with the organization’s resolution to settle for $1.7 billion as part of a strategic “fresh start.”

Nonetheless, Mallinckrodt’s failure to meet a $200 million annual settlement payment merely a few months ago signaled an impending return to bankruptcy proceedings.

The complexity of the situation escalated in June when investors initiated a collective legal action against Mallinckrodt, alleging that the firm had disseminated deceptive and erroneous declarations regarding its fiscal health.

Siggi Olaffson, the Chief Executive Officer of the company, disclosed earlier this month that Mallinckrodt was actively assessing its financial standing while exploring potential courses of action.

Despite the ongoing bankruptcy procedures, Mallinckrodt has declared its intention to sustain its business operations in a “routine” manner.

Following the close of the second quarter of the current year, Mallinckrodt disclosed approximately $480.6 million in available cash. The company registered a second-quarter loss of $748 million.

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