"Architects of ‘Texas two-step’ lambast J&J for its use of the manoeuvre", 14 Feb 2022 [subscription]

“Had we known in 1989 that provisions could be dubiously interpreted for entities to avoid known liabilities such as those causing severe and permanent injuries and deaths, it would never have passed with the “Texas two-step”...” said Steven Wolens, a former Texan lawmaker who wrote the bill.

The 1989 statute enabled so-called divisive mergers, which allow a company to divide its assets and liabilities into separate entities.

Curtis Huff, a former member of the Corporation Law Committee of the Texas State Bar that initially drafted the divisive merger amendments, said they had been intended to create a more flexible business environment in Texas, not to enable companies to avoid liabilities...

The criticism comes on the eve of a court hearing beginning Monday over J&J’s decision last year to invoke the Texas statute and create a company called LTL Management, which manages the talc claims, then immediately place it into bankruptcy...

...The bankruptcy filing has resulted in a stay on almost 40,000 legal claims alleging that the company’s baby talc was sometimes tainted with carcinogenic asbestos...

J&J has denied its talc contains asbestos and can cause cancer. The company has said its objective is to reach a fair and equitable resolution for claimants, noting that it created a $2bn trust to pay out talc claims as part of its corporate restructuring in October...

[Judge] Kaplan has said he intends to rule before the end of February on the talc claimants’ motion to dismiss LTL’s bankruptcy. Bankruptcy experts believe that judgment could be pivotal, either opening the door for more corporations to deploy the manoeuvre, or spelling the end for it...