New York, NY | March 29, 2022 02:45 PM Eastern Daylight Time
Some of the largest investors in what was once Valeant Pharmaceuticals International, Inc. (now known as Bausch Health Companies Inc.) have filed suit to have the spin-off of the Bausch + Lomb eyecare business voided and declared a fraudulent conveyance. The investors seek to have the transaction voided to the extent necessary to satisfy their pending multi-billion-dollar securities fraud claims against Bausch Health.
The suit, which seeks a declaration from the court that the transfer constitutes a voidable transaction under the New Jersey Voidable Transactions Act, does not require a bankruptcy filing by Bausch Health. Rather, the statute only requires the investors to show that Bausch Health is not receiving reasonably equivalent value in return from Bausch + Lomb, and that the transaction will leave Bausch Health balance sheet insolvent, unable to pay future debts, or undercapitalized.
Bausch Health currently faces twenty-one lawsuits for securities fraud arising from, among other things, its financial restatements in 2015 in connection with its now-defunct relationship with Philidor Rx Services. If the investors prevail in their new action against Bausch Health and Bausch + Lomb, the assets transferred to Bausch + Lomb can be used to satisfy a judgment, even though the suit alleges that those liabilities have not been transferred to Bausch + Lomb as part of the spin-off.
“This case seeks to prevent investors from being deprived of recovering billions of dollars in damages arising from violations of the securities laws that occurred when Bausch Health and Bausch + Lomb were a single company called ‘Valeant Pharmaceuticals International’,” said Rolnick Kramer Sadighi LLP (RKS), counsel for some of the plaintiffs. According to RKS, “Valeant should not be permitted to spin off its most valuable assets into a new company and shield them from longstanding securities fraud claims without receiving reasonably equivalent value in return.”
The investors allege that the spin-off of the Bausch + Lomb eyecare business will leave Bausch Health only marginally solvent and with potentially negative equity value according to several leading securities analysts. As such, the investors allege that Bausch Health likely will be unable to pay the $4.2 billion of pending securities fraud claims against it (with the plaintiffs to the fraudulent conveyance action accounting for over $3 billion). The investors allege that Bausch Health management has systematically misled shareholders and the public about the magnitude of the pending securities fraud claims.
Among the investors who filed suit are GMO Trust, Brahman Capital, Okumus, SunAmerica Asset Management, MSD Partners, Discovery Capital Management, and Maverick Capital.
“The time has come for creditors to challenge transactions in which assets are transferred to create one strong company and one weak company at the expense of creditors. We look forward to a judicial determination that this is a fraudulent conveyance,” said RKS.
The suit is captioned GMO Trust, et al. vs. Bausch Health Companies Inc., et al., Docket No. C-12010-22, pending in the Superior Court of New Jersey, Chancery Division, Somerset County.