Purdue Pharma LP opened its first day in bankruptcy court by pledging to continue investigating whether its owners, who are accused of spurring America’s opioid epidemic, wrongly took cash out of the pharmaceutical maker.

One consequence of the bankruptcy is that Purdue and its board of directors is now responsible for pursuing any so-called fraudulent transfers the company made over the years to the Sackler family, company attorney Marshall S. Huebner said in court Tuesday.

That could set up a conflict with any state or local officials who have either sued the Sacklers, or plan to sue them in order to recover the costs of dealing with the public health care crisis brought on by addictive painkillers. Under the U.S. Bankruptcy Code, lawsuits that could benefit creditors are considered the property of the bankrupt company.

Purdue’s legal team spent much of Tuesday’s court hearing in White Plains, New York defending the decision to file for bankruptcy as part of a deal to end lawsuits brought by 24 states and more than 1,000 counties, cities or Native American tribes. Under that proposal, the governments, hospitals and individuals suing Purdue would take ownership from the Sacklers, who have also agreed to pay at least $3 billion and to sell other assets.

“Purdue is not shielding itself from these claimants, it is giving itself to these claimants,” Huebner told U.S. Bankruptcy Judge Robert Drain. “It is America itself that stands to lose or gain”

‘Kill Purdue’

The company will fight “the apparent desire of some to just kill Purdue regardless of the cost to the wider stakeholders,” Huebner said.

New York Attorney General Letitia James is suing the Sacklers and Purdue in a case that is separate from the 2,000 lawsuits by cities, counties and Native American tribes accusing opioid makers and distributors of causing a massive public-health crisis that’s led to the deaths of more than 400,000 Americans.

In a court filing Friday, James claimed that the billionaire family made about US$1 billion in transfers among themselves and their shell companies while they were “draining Purdue of its opioids proceeds.”

A statement from Mortimer D.A. Sackler said the James’ letter referred to “decade-old transfers, which were perfectly legal and appropriate in every respect.”

Opponents of the bankruptcy deal pledged to cooperate, where possible, with the states and cities that have settled with Purdue. But a lawyer for New York warned that the Chapter 11 case will inevitably involve conflict on issues ranging from potential suits against the Sacklers to dividing any money that comes from the proposed US$10 billion settlement.

The goal of the bankruptcy is to give all of the company’s assets -- more than US$1 billion in cash, plus the manufacturing facilities and patented drugs -- to the people and government agencies who say they have been harmed by the U.S. painkiller addiction crisis, Huebner said during federal court hearing Tuesday.

The bankruptcy is different from any other big Chapter 11 case because nearly all of the company’s assets will be used for the benefit of cities, towns and states across the U.S., not to pay distressed-debt investors or other traditional creditors. Purdue has little debt -- the typical bankruptcy culprit -- and more than US$1 billion of cash, but has been so overwhelmed by lawsuits it was forced to seek court protection.

Sackler Payouts

A special committee of Purdue’s board has been investigating transfers to the Sackler family, Huebner said. The committee, which includes restructuring experts appointed in recent months to the board, has produced a 700-page report detailing any dividends the Sacklers received.

The company is in court to seek permission to pay its employees and other bills needed to operate normally while under court supervision, including legal fees run up by workers named in various lawsuits.

Drain approved the company’s interim request to pay workers and cover their legal fees, overruling an objection by the Office of the U.S. Trustee, which opposed bonuses owed to a handful of employees that are part of their normal wages. An attorney for Purdue, Eli Vonnegut, made it clear that none of the payments would go to the Sackler family.

After the hearing, Melanie Cyganowski, co-counsel for a group of states supporting the settlement, said that Tuesday’s court action was mostly routine. One key takeaway was the company’s effort to begin separating itself from the Sacklers, she said.

“When you speak of Purdue, you necessarily speak of the Sacklers,” she said.

The case is Purdue Pharma LP, 19-23649, U.S. Bankruptcy Court for the Southern District of New York (White Plains)