For people who mistakenly believe that bankruptcy is a dry area of the law, one major case could easily change their minds: the case of New England Compounding Center. NECC is the company that was linked to the meningitis outbreak that claimed 44 lives last year. Two Maryland residents were among the victims.
The company filed for bankruptcy protection in December 2012, close on the heels of federal investigators shutting down all of its pharmacy compounding operations. NECC is a closely-held family company; shares are distributed among five individuals, all related by blood or marriage. The shareholders are also directors or officers.
Generally, officers and directors of a company in Chapter 11 are not personally liable for the company’s debts. That’s the point, really, of incorporating: The corporation itself is liable, but the individuals behind it aren’t. The law also protects shareholders from having to use their own funds to bail out a company — which makes sense, really, because shareholders are more like investors than managers. Shareholders aren’t usually the ones who have made the business decisions that racked up the debt.
NECC is a different story. First, the company’s financial woes began when the government shut down its operations. It wasn’t as if there had been trouble on the horizon. And, of course, no production means no revenue, but it may not mean an end to or pause in paying employee salaries and benefits, rent or loan payments for equipment and materials. The shutdown could last for a day or forever, depending on what investigators found.
Second, if investigators determined that NECC’s actions or failures to act were responsible in any way for the meningitis outbreak, the company would face an unknown number of lawsuits from victims and victims’ families. With 44 dead and an additional 700 people sickened by the tainted injections, the company could end up paying out hundreds of millions of dollars in damage awards and settlements.
Then, of course, there are the criminal charges that are pending against the company and at least one officer. We’ll get into this issue more in our next post.
Source: Thomson Reuters News & Insight, “Judge freezes assets of owners of meningitis-linked pharmacy,” Tim McLaughlin, Jan. 28, 2013
Our firm helps companies like the one in this post through the Chapter 11 and Chapter 7 bankruptcy processes. If you would like to learn more about our Rockville, Maryland, practice, please visit our law firm overview page.