Bankruptcy may become a less attractive way to resolve sprawling lawsuits after a US Supreme Court ruling blocked OxyContin maker Purdue Pharma’s settlement.

On Thursday, the court ruled against an estimated $US6 billion ($9 billion) Purdue Pharma bankruptcy plan that would have shielded the Sackler family – which owned and controlled the company – from legal liability.

Hundreds of thousands of Americans have died from opioid-related overdoses since Purdue rolled out OxyContin in 1996. 

The company helped spur a public health crisis through its deceptive marketing and aggressive sales of OxyContin, a prescription opioid painkiller.

The company, but not the family, sought bankruptcy protection in 2019 in exchange for contributions to a global settlement deal. 

US Supreme Court

The US Supreme Court ruled against the settlement on Thursday.(Reuters: Evelyn Hockstein)

That settlement would have forever protected the Sacklers – as well as hundreds of affiliates and other Purdue Pharma insiders – from all opioid-related civil claims. 

Bankruptcy courts offer several attractive tools for companies and other organisations to settle mass tort litigation, which have been used in cases involving claims of widespread sexual abuse against Catholic dioceses and the Boy Scouts of America, the marketing and sale of addictive opioid painkillers, and claims consumer products cause cancer.

Until Thursday’s Purdue decision, bankruptcy could also be used to provide so-called non-debtor releases that provide sweeping civil immunity to companies, people or organisations that have not filed for bankruptcy themselves.

Outside parties often contributed funding for a bankruptcy settlement in exchange for that legal shield.

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