Private equity titans, industrial CEOs and pharmaceutical manufacturers assiduously avoid bankruptcy court. But when their companies have fallen into financial distress, they have found it a useful avenue to manage their own liabilities.
In recent years, US bankruptcy law has evolved to seemingly give judges the broad power to cut deals where parties linked to the bankrupt entity could in effect buy their way out of future lawsuits. Getting money to victims quickly, those judges ruled, was worth slamming the door on the chance to chase those third parties for more.
Now, the US Supreme Court has pushed back. In a landmark 5-4 ruling on Thursday it found US bankruptcy courts had gone too far in approving such horse-trading over so-called “non-consensual third-party releases”, invalidating a hard-fought $6bn settlement struck by members of the Sackler family to settle the 2019 bankruptcy of opioid maker Purdue Pharma.