Judge Craig Whitley’s recent transfer of the LTL Management case will bring a high-profile "Texas Two-Step" chapter 11 bankruptcy to New Jersey, and it may open a new chapter in how courts approach the novel transaction designed to isolate and address certain mass-tort liabilities.
Debtor LTL Management LLC filed for chapter 11 protection in the Western District of North Carolina on October 14, 2021 after its parent, pharmaceutical giant Johnson & Johnson, undertook a corporate restructuring that consolidated certain talc-related tort liabilities into the debtor. LTL's filing was the latest and highest-profile example of the combined restructuring and bankruptcy transaction that has come to be known as the "Texas Two-Step."
The Texas Two-Step transaction is designed to isolate mass-tort liabilities and address them through the Bankruptcy Code. The first step, a corporate restructuring, harnesses an unusual provision of Texas corporate law to divide an existing corporate entity into two successors: one entity intended to continue operations, and the other to house primarily the tort liabilities. Once these liabilities are isolated, the newly created entity holding the tort liabilities files for bankruptcy.
Cases featuring a Texas Two-Step include Bestwall LLC, Aldrich Pump LLC, Murray Boiler LLC, and DBMP LLC. Each of these was filed in the U.S. Bankruptcy Court for the Western District of North Carolina, a district with experience addressing asbestos claims and the...
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