J&J exploring putting talc liabilities into new business that would file for bankruptcy

Johnson & Johnson is exploring a plan to offload liabilities from widespread Baby Powder litigation into a newly created business that would then seek bankruptcy protection. During settlement discussions, one of the health-care conglomerate’s attorneys has told plaintiffs’ lawyers that J&J could pursue the bankruptcy plan, which could result in lower payouts for cases that do not settle beforehand. Plaintiffs’ lawyers would initially be unable to stop J&J from taking such a step. J&J faces legal actions from tens of thousands of plaintiffs alleging its Baby Powder and other talc products contained asbestos and caused cancer. The plaintiffs include women suffering from ovarian cancer and others battling mesothelioma. Should J&J proceed, plaintiffs who have not settled could find themselves in protracted bankruptcy proceedings with a likely much smaller company. Future payouts to plaintiffs would be dependent on how J&J decides to fund the entity housing its talc liabilities. J&J is now considering using Texas’s “divisive merger” law, which allows a company to split into at least two entities. For J&J, that could create a new entity housing talc liabilities that would then file for bankruptcy to halt litigation. The maneuver is known among legal experts as a Texas two-step bankruptcy. A 2018 Reuters investigation found J&J knew for decades that asbestos, a known carcinogen, lurked in its Baby Powder and other cosmetic talc products.

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