Outsourcing liability through bankruptcy move may be blocked

Outsourcing liability through bankruptcy move may be blocked

The U.S. 3rd Circuit Court of Appeals in Philadelphia has dismissed a bankruptcy filing by a J&J subsidiary, LTL Management., one of the so called Texas Two Step companies

Summary: The U.S. 3rd Circuit Court of Appeals in Philadelphia has dismissed a bankruptcy filing by a J&J subsidiary, LTL Management. The subsidiary had been created to house the companies baby powder and talc business, with some commentators suggesting its sole purpose was to shield the rest of the company from more than 38,000 lawsuits from plaintiffs alleging the company’s baby powder and other talc products caused cancer. The strategy is widely known as the Texas Two Step.

Why this is important: If you are an ESG or sustainability investor who owns shares in companies involved, how do you explain this to your clients?

The big theme: Human rights has a broad scope. We traditionally think about it in the context of supply chains, or mine tailing dam collapses, or the murder of human rights defenders in LatAm (all stories we have covered). But at its most basic, it’s about access to the protection of the law, being able to have your case heard and decided fairly.



The details


Summary of a story from Reuters

A U.S. appeals court on Monday shot down Johnson & Johnson's attempt to offload tens of thousands of lawsuits over its talc products into bankruptcy court. The ruling marked the first major repudiation of an emerging legal strategy with the potential to upend U.S. corporate liability law. J&J is one of a number of major companies that have filed so-called Texas two-step bankruptcies to avoid potentially massive lawsuit exposure. The tactic involves creating a subsidiary to absorb the liabilities and to immediately file for Chapter 11.

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