McKesson-Backed Rite Aid Bankruptcy Plan Must Be Denied, US Says

Rite Aid’s proposed plan to wind down in bankruptcy while selling assets to McKesson Corp. fails to clear legal hurdles and shouldn’t be solicited for a creditor vote, the Justice Department’s bankruptcy unit said.

The failed pharmacy chain should be prevented from circulating to creditors a Chapter 11 plan that would improperly release potential legal claims against nonbankrupt third parties and possibly fail to pay administrative claims, the US Trustee’s office said in an objection filed Wednesday with the US Bankruptcy Court for the District of New Jersey.

Rite Aid, which is attempting to resolve its second bankruptcy in two years, is seeking conditional approval to distribute materials for creditors to vote on a plan the company filed last week. The proposal rests largely on an agreement with McKesson that would see the drug distributor take equity in a reorganized entity controlling intellectual property and a central fill facility in New Jersey, and purchase generic pharmaceuticals and branded assets from Rite Aid.

The pending deal includes several conditions releasing potential litigation between the parties, including a suit Rite Aid initiated last month seeking the return of roughly $90 million in payments it transferred to McKesson in the run-up to its filing for bankruptcy in May.

The restructuring agreement also has a toggle feature in which Rite Aid would cease efforts to confirm the plan and instead seek a structured dismissal of its Chapter 11 if it determines that the plan transaction is “impossible or impractical.”

In its present form, the plan proposal is “patently unconfirmable” because it includes third-party releases being imposed on creditors without their consent and could leave the company unable to pay administrative claims “in accordance with the priorities established by the Bankruptcy Code,” US Trustee Andrew R. Vara said in his filing Wednesday.

Rite Aid should revise its plan and extend the timeline for creditors to review materials before a court hearing, Vara added.

The company didn’t immediately respond to a request for comment.

Rite Aid’s bankruptcy came less than a year after it emerged from a previous Chapter 11 process, saying it was overburdened by business costs and would close or sell its stores using funding from existing lenders.

As part of the 2024 restructuring plan, McKesson agreed to a $175 million cash settlement to be paid over three years and gave Rite Aid favorable future pricing terms while cutting the time the chain could pay its bills.

Rite Aid is represented by Paul, Weiss, Rifkind, Wharton & Garrison LLP and Cole Schotz PC.

The case is New Rite Aid LLC, Bankr. D.N.J., No. 25-14861, objection filed 9/10/25.