On Tuesday, in a federal bankruptcy court in the US state of Delaware, Judge John Dorsey heard the final arguments of a lengthy case over the chapter 11 reorganisation plan for Mallinckrodt, the pharmaceutical giant. 

The debt restructuring plan is designed to allow the company to shed as much as $1.3 billion in debt and to deal with lawsuits claiming it profited from America’s opioid epidemic by making a $1.7 billion settlement. 

It has not been an easy process. Rhode Island, for example, has opposed the settlement, arguing that the deal would shield the company’s executives from opioid litigation. The US state is one of the notice parties on a 50-page list annexed to court documents. However, lawyers representing opioid victims, most US states and other Mallinckrodt creditors have backed the deal, which would resolve thousands of pending and future lawsuits against Mallinckrodt if it gets the green light.  

There are also issues relating to its Acthar gel product, which treats infantile spasms, multiple sclerosis and other conditions. The company is facing a slew of litigation in relation to allegations of price gouging, and many of those pursuing the company say the bankruptcy plan has argued that the settlement will leave them with an unfairly small piece of the unsecured creditor settlement. 

A decision is expected in the coming days. However, even if the drugmaker emerges from the Chapter 11 process, it will soon enter into another insolvency process – in Dublin. 

The drugmaker is headquartered in Dublin and employs 120 people in its facility in Blanchardstown in west Dublin, working in research and development, manufacturing, supply chain management and other support functions. 

However, its financial footprint is much larger. The company has located billions of dollars of intellectual property in Dublin. 

 As such, its next step is to ask the High Court to appoint an examiner to its Irish-based companies. Accountancy firm Grant Thornton has been lined up to manage the process. An application is expected to be made in the next two weeks, once the US authorities give the green light. 

Among the conditions that must be met for Mallinckrodt’s final plan of reorganisation submitted to the US court this week, the submission noted: “The High Court of Ireland shall have made the Irish Confirmation Order and the Scheme of Arrangement shall have become effective in accordance with its terms.”

The move is designed to restructure the Irish units in line with the Chapter 11 process. Unlike many normal examinerships, it will not impact staff or suppliers. Instead, it is more about financial reengineering. 

However, given the scale of the numbers involved, it will be arguably the biggest examinership to come before the Irish Courts. 

So, given its relatively small headcount here, just why is Ireland so important to Mallinckrodt? 

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As previously reported, recent years saw its Dublin office not only become the group’s global headquarters, but also its intellectual property (IP) centre. Like so many other US technology-based multinationals, Mallinckrodt moved multi-billion-dollar intangible assets to Ireland to amortise their value against income here and pay the famously low 12.5 per cent corporation tax rate on any residual profits.

In 2015, its Dublin subsidiaries Mallinckrodt ARD IP and Mallinckrodt Hospital Products IP acquired patents and trademarks worth $6.7 billion across Acthar and a range of other drugs and delivery methods. Meanwhile, their common intermediary holding company Mallinckrodt Pharma IP Trading had been allocating new technology rights within the group as they became available, buying and selling hundreds of millions of dollars’ worth of intellectual property year after year through the Blanchardstown campus.

In late 2020, however, as the group reorganised under Chapter 11 protection in the US, it conducted a major clean-up of its Irish intellectual property trove. On Christmas Eve that year, six Irish group companies reported interconnected transactions transferring intangible assets and associated intercompany debt and share capital.

In the process, the subsidiary in possession of patents including Acthar’s carried out a fresh valuation of its intellectual property, triggering a $1.5 billion impairment and leaving its carrying value at just $1.4 billion.

Meanwhile, the hospital products IP vehicle recorded another $201 million impairment, reducing the value of its intangible assets to $1.1 billion.

Mallinckrodt Pharma IP Trading, too, disposed of its intellectual property and directors reported that the future of that entire branch of the group was now under consideration.

Instead, after transiting through various intermediary holding companies and triggering billions of dollars’ worth of intercompany debt  and share issuances, distributions and write-offs, the group’s slimmed-down IP ended up in its main Irish trading company, Mallinckrodt Pharmaceuticals Ireland, which disclosed the final transaction as follows:

“On 24 December, 2020, the company acquired certain intellectual property associated Acthar, Therakos, INOmax, Ofirmev and Terlipressin from Mallinckrodt Hospital Products IP unlimited Company. The intellectual property had a value of $3,654,000,000.”

In exchange, the Irish company contracted a $2.5 billion intercompany debt at an interest rate of 10 per cent maturing at the end of 2028, which was last reported to be owed to its parent in Luxembourg.

A small portion of the assets covered by the reorganisation, Ofirmev IP worth $75 million, has since been discounted after Mallinckrodt failed to find a new external manufacturer for the product. The rest of these intangibles are now amortised against Mallinckrodt Pharmaceutical Ireland’s sales, which halved to $1 billion last year and were nearly all in North America. The Irish company’s revenue was then equivalent to half of the group’s global sales.

It is now the turn of this crucial cog in Mallinckrodt’s engine to go through the insolvency process in Ireland.