|The impact of COVID-19 is still uncertain, but what is clear is that the global outbreak of this virus has caused, and will continue to cause, serious business setbacks of all kinds from quarantine orders, business closures, and social distancing, all while we’re waiting for flattening the curve of the pandemic. A pronounced, dramatic economic downturn is predicted as the pandemic touches all businesses, regardless of geography or industry.
To the mass tort practitioner, it is important to take note that planning for this future could lead to successful outcomes to victims you represent. If you engage in litigation or are planning litigation against a company that has challenges in paying its ongoing business costs, in addition to keeping available limits of insurance necessary to meet settlement and fund verdicts for mass tort victims, you should consider consulting with us.
While the US economy continued to grow over the last several years, companies took out significant, historically high levels of debt. Therefore, the pandemic may be the tipping point for companies that otherwise would have survived the normal ebb and flow of profits and economic hardship.
This article is intended to help trial lawyers better understand how valuable a Chapter 11 tool is during a time of crisis and how to successfully use a Chapter 11 reorganization. You must become proficient in the U.S. Bankruptcy code to effectively and economically manage mass tort claims in the bankruptcy process.
While very few trial lawyers think of the bankruptcy court as a place to plan for success, many firms who have engaged in the practice, from GM ignition switch, Takata airbags, PG&E fire claims, New England Compounding tort claims, and a host of others that went before, know that in the hands of the right counsel, it can become an effective and economical way to resolve claims for significant value, including full or made-whole value.
The Benefits of a Chapter 11 Reorganization
The benefits of a Chapter 11 reorganization are many. If you’re engaged in litigation against the company that files under section 362 of the bankruptcy code, the automatic stay is in effect after filing the petition, so it may stop trials and expensive discovery. It also freezes the assets effectively to preserve them for creditors, including tort victims who can be the single largest creditor group in a mass tort against a company. This was the case in the recent PG&E case, where a $13.5 billion plan is pending confirmation for fire victims, as well as many others.
The Official Committee
The application process requires documentation of the claim and an interview by the United States trustees’ office. Experienced counsel are often selected to serve based on their success in completing Chapter 11 bankruptcies and understanding the roles necessary to conclude a case with confirmation of a plan. You may want to consider applying for a seat on an official committee for your client. We will be covering this complicated and interesting process in part II of this series.
Necessary Preparation in Advance of a Chapter 11 Filing
Andrews & Thornton has the skill set and is available for consulting with firms that have concerns that companies they are either engaged in litigation with or about to engage in litigation may have limited resources to pay their debt and tort claims from insurance and assets. What we suggest is you reach out to us in advance of the filing, as many things can be done to “set the table” for victims of mass tort by engaging with the debtors’ counsel. We have relationships with most of the larger firms who have represented the biggest corporations in mass tort bankruptcies. We are ready to assist those reading this newsletter to consult on how you might organize in order to be successful.
The future of mass tort may well rest on the success we can bring within the bankruptcy context. Only the most experienced law firms have navigated these waters as many times as Andrews & Thornton has. Contact us for a consultation if you need us to review the facts and plan a strategy with you.
Be safe, and stay healthy.
ANDREWS & THORNTON