The moral limits of bankruptcy law
Companies are increasingly using the bankruptcy process to shortchange the rights of those seeking accountability for corporate wrongdoing
WHEN Purdue Pharma filed for Chapter 11 bankruptcy in 2019, it had over a billion US dollars in the bank and owed no money to lenders. But it also had the Sacklers, its owners, who were eager to put behind them allegations that they played a leading role in the national opioid epidemic.
The US Supreme Court is now considering whether the bankruptcy system should have given this wealthy family a permanent shield against civil liability. But there is a bigger question at stake, too: Why is a company with no lenders turning to the federal bankruptcy system in response to accusations of harm and misconduct?
The maker of OxyContin is one in a long line of companies that have turned Chapter 11 into a legal Swiss Army knife, tackling problems that are a mismatch for its rules. Managing costly and sprawling litigation through bankruptcy can be well-intentioned. But Chapter 11 was designed around the goal of helping financially distressed businesses restructure loans and other contract obligations.
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