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What is a Texas Two-Step Bankruptcy and Will It Work for J&J?

What is a Texas Two-Step Bankruptcy and Will It Work for J&J?

Posted on Wednesday, July 7th, 2021

Continuing Threat of Texas Two-Step

Back in January 2021, we shared in our newsletter that J&J was threatening to file a shady type of bankruptcy called a Texas two-step. That threat still lingers.
Later this month, a judge is expected to rule as to whether or not such a move constitutes fraud on creditors in two other bankruptcies where similarly solvent and economically viable companies have tried a similar Texas two-step move. The outcome of those cases could affect approximately 20,000 OnderLaw clients who are victims of talc-related cancer.

A Texas two-step bankruptcy is a move that’s in line with the unscrupulous tactics Johnson & Johnson has exercised for decades. If they are successful (and we don’t believe they will be) the company hopes to discharge their liability from talc lawsuits throughout the country.

There are many reasons why we believe that this attempt will not be successful. Still, we want you to be aware of what is going on so that, should you read or see media reports, you’ll understand what J&J is attempting to do. Here’s a rundown:

What is the Texas Two Step?

First, the State of Texas has what is called a divisive merger statute. Essentially it allows a company to divide into two separate entities.
Step 1:

J&J can, in theory, split off some of their assets along with their talc liabilities into a separate inadequately funded entity in Texas.

Step 2:
J&J could attempt to change the domicile of that entity to North Carolina, then file bankruptcy to discharge liabilities.
We believe this is a delay tactic and are hopeful that the judge will see through this effort to avoid accountability, and we will keep you posted! Be sure to follow us on Facebook (OnderLaw, LLC) where we will share the decision as soon as it is announced.

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