By Nicholas A. Koffroth (Fox Rothschild)
In Insys Liquidation Trust v. MeKesson Corporation (In re Insys Therapeutics, Inc.), No. 21-50176 (JTD), No. 21-50176, 2021 WL 3083325 (Bankr. D. Del. July 21, 2021), the United States Bankruptcy Court for the District of Delaware reminded practitioners to exercise caution when analyzing the scope of protections offered by critical vendor orders. The order at issue in Insys Therapeutics provided that “[t]he Debtors are authorized, but not directed . . . to maintain and administer the Customer Programs” and that “[n]othing contained . . . in this Final Order is intended to be or shall be construed as . . . (c) a waiver of any claims or causes of action that may exist against any creditor or interest holder.” These common provisions proved critical in the Court’s holding that “something more is required” to insulate critical vendors from preference liability.
In the opinion, the Court denied a motion to dismiss the complaint brought by a group of critical vendors for three reasons. First, the Court held that preferential payments that occur before the entry of a critical vendor order cannot be protected by a subsequent authorization to pay outstanding prepetition claims unless specifically provided in the order. Second, the permissive language of the critical vendor order did not support the vendors’ claim that the prepetition payments would necessarily have been authorized had they been made postpetition. Third, the critical vendor order expressly preserved the estates’ claims against critical vendors. Additionally, the Court analyzed and rejected application of the limited “critical vendor defense.”
The article discusses the Court’s holding in greater detail and offers practical considerations for practitioners. The full article is available here.