The US Supreme Court has blocked OxyContin maker Purdue Pharma’s bankruptcy settlement, which would have shielded its wealthy Sackler family owners from lawsuits over their role in the deadly opioid epidemic in the United States.

The 5-4 decision reversed a lower court’s ruling that had upheld the plan to give Purdue Pharma’s owners immunity in exchange for paying up to $6bn to settle thousands of lawsuits accusing the company of unlawful misleading marketing of OxyContin, a powerful pain medication introduced in 1996.

The ruling on Thursday represented a victory for US President Joe Biden’s administration, which had challenged the settlement as an abuse of bankruptcy protections meant for debtors in financial distress, not people like the Sacklers, who have not filed for bankruptcy.

Purdue Pharma filed for Chapter 11 bankruptcy in 2019 to address its debts, nearly all of which stemmed from thousands of lawsuits alleging that OxyContin helped kick-start an opioid epidemic that has caused more than half a million US overdose deaths over two decades.

At issue in the case was whether US bankruptcy law lets Purdue Pharma’s restructuring include legal protections for the members of the Sackler family, who have not filed for personal bankruptcy. These so-called “non-debtor releases” originally arose in the context of asbestos litigation, but their use has been expanded by companies looking to use such protections as a bargaining chip.

The Stamford, Connecticut-based company estimates that its bankruptcy settlement, approved by a US bankruptcy judge in 2021, would provide $10bn in value to its creditors, including state and local governments, individual victims of addiction, hospitals and others who have sued the company.

The Biden administration and eight states challenged the settlement. All the states dropped their opposition after the Sacklers agreed to contribute more to the settlement fund, but the US Trustee – the Justice Department’s bankruptcy watchdog – and some individual opioid plaintiffs maintained their opposition.

A group comprising more than 60,000 people who have filed personal injury claims stemming from their exposure to Purdue Pharma opioid products told the Supreme Court they support the settlement, including legal immunity for members of the Sackler family.

In upholding the settlement in May 2023, the Manhattan-based US Court of Appeals 2nd Circuit concluded that federal bankruptcy law permits legal protections for non-bankrupt parties like the Sacklers in extraordinary circumstances.

It ruled that the legal claims against Purdue Pharma were inextricably linked to claims against its owners, and that allowing lawsuits to continue targeting the Sacklers would undermine the company’s efforts to reach a bankruptcy settlement.

The Supreme Court in August 2023 paused bankruptcy proceedings concerning Purdue Pharma and its affiliates when they agreed to take up the administration’s appeal of the 2nd Circuit’s ruling.

During arguments in December, a Justice Department lawyer said the Sackler family members withdrew billions from Purdue Pharma before agreeing to contribute up to $6bn to the opioid settlement, and argued that the deal effectively “permits the Sacklers to decide how much they’re going to contribute”.

Lawsuits against Purdue Pharma and Sackler family members accused them of fuelling the opioid epidemic through deceptive marketing of its pain medication. The company pleaded guilty to misbranding and fraud charges related to its marketing of OxyContin in 2007 and 2020.

Members of the Sackler family have denied wrongdoing but expressed regret that OxyContin “unexpectedly became part of an opioid crisis”. They said in May 2023 that the bankruptcy settlement would provide “substantial resources for people and communities in need”.

Purdue Pharma has accused the US Trustee of managing to “single-handedly delay billions of dollars in value that should be put to use for victim compensation, opioid crisis abatement for communities across the country and overdose rescue medicines”.