Are companies abusing the voluntary bankruptcy process?! From all over the world the private investors of the giant drug maker Mallinckrodt claim in an unprecedented move that this is the case.
Mallinckrodt filed for voluntary bankruptcy on October 12 this year, according to it all the existing share capital is supposed to wipe out without any compensation to the shareholders. The main reason for the bankruptcy petition was the huge amount of lawsuits filed against it due to an addictive painkiller affair. However, under the plan, the plaintiffs receive an answer that is not at all related to the write-off of the existing share capital. In fact, the only stakeholders who will benefit from the delisting of the existing share capital are rather scandalously, the management and key employees, who are responsible for the situation of the company, will also receive 10% of the new share capital of the company and the Guaranteed Unsecured Notes, whom the company’s debt amount is approximately $ 1.2 billion, and who will receive the full new share capital of the company instead of about $ 825 million (since another 375 million will be issued as new secured notes).
It should be noted that the insider shareholders previously held only 1.7% of the company’s share capital; so that they are in fact doubling their holdings more than 5 times as part of the bankruptcy plan! Moreover, just a few months ago, these executives received $ 5 million in compensation from the company, in preparation for bankruptcy proceedings.
During a couple of weeks since Mallinckrodt’s management filed the petition, private shareholders around the world have lamented the blatant injustice. People have written in astonishment that they believed in the company and management and now they may lose life savings. Some have even claimed that it is real corruption on the part of management.
Chris Wooten from California claims voluntary bankruptcy should be a last resort when management understands that otherwise the company will not survive, and also during the procedure – the harm to stakeholders should be as minimal as possible, whereas in this case management seems to have chosen the easy solution at the expense of shareholders.
Alexander Koch from Germany wrote in deep disappointment: “I would never have thought that in America it is so easy and so obvious to cheat the shareholders, my trust in the laws in the USA is gone!”
On the background of this outrage, a number of shareholders have taken the initiative and in an unprecedented move organized the shareholders from all over the world for cooperation. They set up a Facebook group called “MNK’s Shareholders“, wrote objections to the court, and even organized a group that owned a cumulative 10% of the company’s stock, demanding the appointment of a shareholders’ committee to represent private investors.
James Parker from North Carolina said: “The management abuses the voluntary bankruptcy process and is acting in bad faith. They don’t even try to convince that there is no better alternative that would not harm the shareholders.”
John Deery from Ireland said also: “Maybe Mallinckrodt’s management has been thinking that the private shareholders are helpless, but we are determined to prove they are wrong.”
Sergey Korenev from Russia pointed out that on the official LinkedIn of Mallinckrodt Pharmaceuticals, there was the comment of Christine Pote, Administrative Assistant to Chief Legal Officer at Mallinckrodt Pharmaceuticals that proves that the management uses the bankruptcy as an economic tactic only. Christine boasted with pride that MNK is an amazing organization and that there is a big difference between going bankrupt and filing for Chapter 11 protection. Shortly after Christine deleted her comment, but the quick shareholders managed to capture the screen.
Correspondence from the LinkedIn page of Mallinckrodt
The group is also approaching several law firms in the USA which expertise in bankruptcy law, offering them to represent the shareholders against the management.
The group includes private shareholders from the USA, Spain, Ireland, Israel, Russia, France, Canada, Saudi Arabia and other countries who cooperate with each other with the common goal of preventing Mallinckrodt’s management from deleting their shares.
The fight has only just begun and it is too early to know how it will develop, but it seems that the case may be a milestone in the history of voluntary bankruptcy in the US, and if shareholders’ claims are accepted, it will be a warning sign to company executives against the misuse of voluntary bankruptcy proceedings.