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The need for Chapter 11 bankruptcy protection can arise under a wide variety of circumstances. For antiviral drug maker Siga Technologies Inc., a costly judgment in a licensing dispute not only jeopardizes the company's viability; enforcement of the judgment could prevent Siga from producing and delivering an important smallpox drug to the national stockpile.

Siga has been involved in a licensing dispute with PharmAthene Inc. since 2006. On Aug. 8, Siga was found liable, and PharmAthene could be awarded more than $232 million. Enforcement of that judgment, says Siga, would freeze the company's operations. To keep that from happening, Siga has filed for Chapter 11 bankruptcy protection, which provides an automatic stay that stops creditor actions.

Siga plans to appeal the judgment, but the company doesn't have the funds to cover the bond for PharmAthene's awarded damages, plus interest. The bankruptcy filing is aimed at protecting Siga's right to appeal the ruling, which was made in a Delaware corporate law court.

The bankruptcy filing is also meant to help Siga deliver on its obligations to the federal government. Siga makes the antiviral medication Tecoviramat, a smallpox drug to be placed in the U.S. Strategic National Stockpile. The stockpile is the country's repository of vaccines, antibiotics and other drugs to be used in the event of a national emergency.

As lawyers for Siga put it, "Only the automatic stay provisions of the Bankruptcy Code can prevent PharmAthene from immediately enforcing the Court of Chancery's judgment, executing on Siga's assets, seizing its bank accounts, and effectively freezing Siga's operations -- thus depriving the nation of an important drug."

For a business with heavy debts, Chapter 11 can be an effective way of preserving assets and buying time while the company restructures. Chapter 11 isn't appropriate for every situation, however, and business owners should speak with an experienced business law attorney about the full range of legal options.

Source: The Wall Street Journal, "Siga Technologies Files for Bankruptcy Protection," Peg Brickley, Sept. 16, 2014

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