Question

The A. H. Robins Company is a publicly held company that filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. Robins sought refuge in Chapter 11 because of a multitude of civil actions filed against it by women who alleged they were injured by use of the Dalkon Shield intrauterine device that it manufactured and sold as a birth control device. Approximately 325,000 notices of claim against Robins were received by the Bankruptcy Court. In 1985, the court appointed the Official Committee of Security Holders to represent the interest of Robins' public shareholders. In April 1987, Robins filed a proposed plan of reorganization but no action was taken on the proposed plan because of a merger proposal submitted by Rorer Group, Inc. Under this plan, Dalkon Shield claimants would be compensated out of a $1.75 billion fund, all other creditors would be paid in full, and the Robins stockholders would receive stock of the merged corporation. However, it being a time of other critical activity in the bankruptcy proceeding, no revised plan incorporating the merger proposal had been filed or approved. Earlier, in August 1986, the court had appointed Ralph Mabey as an examiner to evaluate and suggest proposed elements of a plan of reorganization. On Mabey's suggestion, a proposed order was put before the district court supervising the proceeding that would require Robins to establish a $15 million emergency treatment fund "for the purpose of assisting in providing tubal reconstructive surgery or in-vitro fertilization to eligible Dalkon Shield claimants." The purpose of the emergency fund was to assist those claimants who asserted that they had become infertile as a consequence of their use of the product. A program was proposed for administering the fund and for making the medical decisions required. On May 21, 1987, the district court ordered that the emergency treatment fund be created. This action was challenged by the committee representing the equity security holders. Was the court justified in ordering the distribution of some of the bankrupt's assets on an emergency basis before a reorganization plan was approved?



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  • CreatedJuly 16, 2014
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