Aralez Pharmaceuticals US – Committee Objects to Deerfield Bid Protections, Cites “Commercial Absurdity” of “Value Grabs”

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October 3, 2018 – Aralez Pharmaceuticals’ Official Committee of Unsecured creditors filed an objection [Docket No. 140] to the Debtors’ bid procedures Motion [Docket No. 113]. The Committee asserts, “When the Debtors filed for Chapter 11 and CCAA relief, they explained the purpose and game-plan of their bankruptcies as follows: (i) these would be very quick cases; (ii) the company’s U.S. operations had already transitioned to a “virtual” business, with most employees terminated pre-petition; (iii) all estate assets would be rapidly sold outside of a plan; (iv) the Debtors’ secured lender, Deerfield, would be the ‘stalking horse”’ bidder for the principal assets of the Debtors and provide financing to the purchaser of the other assets; and (v) given the nature of the assets in question and level of “stalking horse” bids, unsecured creditors should not expect any value from the cases. As for the Debtors’ Toprol-XL assets, Deerfield would take them directly, via Section 363(k) credit bid. As for the Vimovo and Canadian assets, Deerfield would take them indirectly, rolling its Aralez debt into financing for Nuvo Pharmaceuticals Inc. (‘Nuvo’), a micro-cap concern with a market capitalization of approximately $25 million, that would, in turn, ‘front’ the bid….
This is, to be sure, a controversial way to prosecute a bankruptcy case. Bankruptcy is not intended to be a federal foreclosure device, inuring benefits solely for the secured lender….The ‘stalking horse’ bid protections are unnecessary, and are tantamount to incremental value grabs. Again, the ‘stalking horse’ bids are made by or for the benefit of Deerfield, and are intended to substantially repay Deerfield’s pre-petition purportedly secured debt. It is commercial absurdity to contend that Deerfield requires ‘stalking horse’ protections to encourage a bid that is, essentially, foreclosure on collateral…. the Bid Procedures do not foster and encourage bidding. Given the nature of this proposed bidding process, the Debtors assuredly need to shower the market (as well as the Court) with evidence that: (a) this will be a full and fair auction process; (b) it is worth a potential bidder’s time and money to conduct diligence, submit a bid, and participate at the auction; and (c) this is not a ‘rigged’ or ‘inside-track’ process unduly favoring Deerfield. We do not have that. The history of Aralez shows an uncomfortably close relationship between management and Deerfield.”

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