Tenacious Advocacy Pays Off in Big Bankruptcy Recovery

“Even holders of pre-bankruptcy Solutia’s common shares will make a recovery, despite repeated warnings by the company that those shares would be worthless. ... Those who had been set to get nothing could wind up owning a combined 18 percent of a growing corporation.”

—St. Louis Post-Dispatch, September 27, 2007

St. Louis-based Solutia Inc. was born in 1997, when a pharmaceutical company subsidiary spun off most of its chemicals businesses to shareholders as an independent entity. But that spin-off left Solutia with “hundreds of millions of dollars in yearly liabilities for environmental cleanup, litigation and employees’ healthcare,” as reported by The Deal magazine. Six years later, Solutia filed for Chapter 11 bankruptcy, relegating shareholders to the lowest priority claims in a company with a negative $370 million net value.

Pillsbury represented the Official Committee of Equity Holders, which appeared to have little legal leverage in Solutia’s bankruptcy proceedings. But with Pillsbury’s advocacy, the equity committee “created a big bump in Solutia’s road to emergence,” according to the St. Louis Post-Dispatch.

The committee brought suit against Solutia’s former parent and demanded that the parent company take back more than $2 billion in legacy liabilities that had been allocated to Solutia at its spin-off. In addition, “the equity committee did not shy away from offering a scathing assessment of the restructuring plan and disclosure statement Solutia filed,” according to Bankruptcy Law360.

After four years in court, Pillsbury’s tough line paid off. As a settlement, the equity holders received 1% of the new Solutia stock, and another 17% of the company’s stock was made available to them at a steeply discounted rate to plan value.