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Law360 (June 4, 2020, 9:20 PM EDT) -- A Delaware judge on Thursday gave her nod to the Chapter 11 plan of drug technology company Valeritas Holdings Inc. in what was one of the first insolvency cases nationwide blaming the coronavirus outbreak for a company's trip into bankruptcy.
During a hearing held via telephone, U.S. Bankruptcy Judge Laurie Selber Silverstein said she will sign off on the confirmation order once some final revisions are made to clarify liability releases that will be given to certain parties under the plan.
Judge Silverstein rejected provisions that would have expanded provisions protecting lenders from potential claims against them, but noted the lenders are already shielded by other terms in the plan. The judge asked the parties to shore up language dealing with liability releases before submitting a final order to the court.
The U.S. Trustee's representative Richard L. Schepacarter had argued that exculpation provision in Valeritas' Chapter 11 plan were too broad and would protect prepetition lenders from too wide a swath of potential liability causes of actions.
"This is about a very narrow subset of releases," said prepetition lender Jeffrey S. Sabin of Venable LLP. The releases were included in the plan because the lenders were deemed to have made a "significant contribution" in moving the bankruptcy along, including allowing the use of their cash collateral and agreeing to certain concessions to resolve issues.
But the judge questioned if expanded exculpation provisions were warranted or even needed given other liability releases included in the plan. Once the order is revised, the judge said she will finalize the plan's confirmation.
In March, Judge Silverstein approved the $23 million sale of the New Jersey-based diabetes drug technology company to Zealand Pharma AS, a Denmark-based biotech company. Valeritas had cited the coronavirus outbreak's impact on its Chinese factories in its Chapter 11 filing.
Valeritas and three affiliates hit bankruptcy in February, saying years of losses and a one-two punch of late-year manufacturing problems and coronavirus-related production disruptions sent it into default on its debt and left it no way to preserve the company other than a Chapter 11 sale with a $23 million stalking horse bid in hand from Zealand.
Earlier in the case, Judge Silverstein also signed off on an agreement between Valeritas, the committee of unsecured creditors, and prepetition lender agent CRG Servicing LLC by which the lenders will share some estate proceeds with unsecured creditors.
Under the deal, prepetition lenders agreed to subordinate their unsecured claim to clear the way for unsecured creditors to get a distribution from the bankruptcy estate.
Prepetition lenders have a total claim of about $22 million, roughly $18 million of which is unsecured, according to comments at a previous hearing. On Thursday, Sabin said $2.5 million remains to be distributed to unsecured creditors and pay off remaining administrative claims.
Valeritas manufactures V-Go, a patch-like insulin delivery device for Type 2 diabetics. The device is manufactured in China and has been on the market since 2012, the company said in court filings.
Valeritas is represented by Maris J. Kandestin and Rachel Ehrlich Albanese of DLA Piper.
The prepetition lenders are represented by Daniel A. O'Brien, Jeffrey S. Sabin and Carol Weiner Levy of Venable LLP.
The case is In re: Valeritas Holdings Inc., case number 1:20-bk-10290, in the U.S. Bankruptcy Court for the District of Delaware.
--Additional reporting by Rick Archer. Editing by Amy Rowe.
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