Scilex Holding Company (NASDAQ:SCLX) seems to be caught up in a nasty Chapter 11 fight. Nothing to do with Scilex itself, that continues to operate and trade normally, the quotation continues and so on. Rather, the parent company, Sorrento, is in Chapter 11. That as the result of an award in litigation against Sorrento and in favour of NantPharma. The aware there, requiring a $50 million immediate payment, would so disrupt Sorrento's capital and cash management that Chapter 11 was decided upon as the way to manage the exposure.
That shouldn't affect Scilex, we don't pierce the corporate veil in such circumstances. But shouldn't and do not are different meanings.This has led to another court case here, one which Sorrento - note Sorrento, not Scilex - managed to win. But as the issue was over Scilex stock, that's why the impact upon the Silex stock price at that resolution of the issue in the court.
Scilex Holding Company stock price from NASDAQ
The issue is that Sorrento distributed 76 million shares of Scilex to Sorrento stockholders as a dividend. That was back in December. That's fine, could be a useful way to distribute to the shareholders the value of the subsidiary. The problem comes partly with the Chapter 11 filing 6 weeks later. Asset distributions in the run up to a bankruptcy are “callable”. That is, the court can say that shouldn't have happened because it was moving assets outside that entity which is now claiming bankruptcy. Another way of making the point might be that if Sorrento still owned the 76 million Scilex shares - instead of having distributed them - then meeting the $50 million payment to NantPharma wouldn't be a problem.
This then all gets rather tangled. The brokers who were supposed to distribute the Scilex stock seem to not want to tell Sorrento where that stock is. The latest court order demands that they do provide that information. Why this would make Scilex stock bounce we're really not sure. We're running with the idea that it probably shouldn't have done and therefore the effect will fade. But note that this is an assumption, not a fact that we're retailing. We can't see where who owns Scilex stock is an important element in its valuation. Those 76 million pieces exist, whoever owns them. So, brokers revealing where they are doesn't to us, seem important - not 60% important - to the value of Scilex. Note that this isn't and wasn't a distribution to the owners of Scilex- it was to Sorrento stockholders.