U.S. Says Valeritas Sale Settlement Violates Bankruptcy Law

A settlement between bankrupt Valeritas Holdings Inc. and some of its creditors related to a proposed $23 million sale of the company violates the bankruptcy code’s asset distribution priority scheme, the Justice Department says.

The settlement could result in the bankruptcy case’s dismissal and unsecured creditors receiving proceeds of asset sales before creditors with seniority in the bankruptcy priority scheme are paid in full, the U.S. Trustee’s Office said in a filing Thursday in the U.S. Bankruptcy Court for the District of Delaware.

Such a “structured dismissal” would violate the U.S. Supreme Court’s 2017 ruling in Czyzewski v. Jevic Holding ...