The Truth Behind Massive Corporations Filing for Bankruptcy

The general public has recently become increasingly aware of massive corporations, which often rake in billions of dollars in profit annually, opting to file for bankruptcy. This is sometimes phrased in corporate speak as “reorganization.”

The very difficult decision to file for personal bankruptcy is usually made when a person is in dire financial straits with little to no personal assets or choice in the matter. Contrast this reality with massive corporations (with loads of money) gaming the system, filing for bankruptcy protection when faced with potential civil liabilities resulting from the production and sale of their dangerous and deadly products.

While these cynical tactics are making headlines now, they are hardly news to the asbestos lawyers and clients at the O’Brien Law Firm.

In this article, our lawyers reveal the truth behind how massive corporations are exploiting the bankruptcy system, including the asbestos bankruptcy trust fund framework.

Johnson & Johnson and Purdue Pharma

Johnson & Johnson, a household name in consumer products, and Purdue Pharma, a lesser-known name that made and manufactured OxyContin, made headlines over the past several years for filing fake bankruptcies.

These companies filed for bankruptcy protection to avoid the threat of jury awards. Johnson & Johnson did so to avoid compensating victims of asbestos-infected baby powder, while Purdue Pharma filed to avoid paying patients unnecessarily addicted and sickened by their opiates.

These actions garnered significant negative media coverage and public outrage, given the substantial number of people exposed or affected and the disturbing facts involved (i.e., baby powder used on infants containing deadly asbestos fibers, and false information deliberately spread to physicians and patients about the addictive nature of a widely prescribed pain killer).

For the first time, corporate misuse of the bankruptcy process truly captured the public’s interest, which turned the spotlight on other companies using similar tactics.

Chapter 11 and Asbestos Trust Funds

For decades, asbestos product manufacturers have filed for Chapter 11 bankruptcy, specifically under Section 524(g) of the Bankruptcy Code. In a 524(g) filing, asbestos liabilities, along with certain assets often from untapped insurance policies or self-insurance reserves, are transferred from the debtor and put into a trust ostensibly designed to process and pay injury claims.

On the surface, this may sound like a reasonable compromise. In truth, this legal maneuver substantially lessens the compensation available to victims of mesothelioma, asbestos-related lung cancer, and asbestosis while allowing the companies to become lawsuit-proof.

O’Brien Law Firm lawyers did their research. Of the over 100 companies that have filed for bankruptcy due to alleged asbestos liabilities, the vast majority of these companies (approximately 75%) continue to operate as thriving businesses today (which they were before the bankruptcy filing). Of the companies that failed, most went under due to legitimate business reasons completely unrelated to asbestos liabilities.

Asbestos companies are not now facing financial pressure from asbestos lawsuits that will kill these companies. The below example of Georgia-Pacific (a company that reportedly saw $17 billion in revenue in 2023) is very telling. They are recently under fire in large part due to the negative attention and public outcry surrounding the moves of Johnson & Johnson and Purdue Pharma.

Georgia-Pacific and the Texas Two-Step

Georgia-Pacific, a privately held company employing approximately 35,000 people, is a global leader in producing building and paper products. In 2017, they pioneered a legal strategy referred to as the Texas Two-Step.

Here’s how the Texas Two-Step works.

Step 1: Create a new corporation.
Step 2: Transfer the tort liabilities over to that newly created corporation. This strategy relies on a divisive merger (also known as a reverse merger), a technique widely accepted in Texas.

When this process is complete, the newly created company files for 524(g) bankruptcy. Once a bankruptcy is filed, all pending lawsuits are frozen, and new lawsuits may not be filed.

This freeze or halt to all litigation is a massive benefit to the filing company, allowing them to stop making any claim payments for many years as the bankruptcy filing makes its way through the bankruptcy court.

Asbestos victims are now in their seventh year of being prevented from seeking justice from Georgia Pacific for exposure to its asbestos-laden joint compounds and wall products. Many of these victims have died during this time and will never have their day in court.

The O’Brien Law Firm is Here to Help

The O’Brien Law Firm looks forward to the day that mesothelioma victims will be able to receive compensation, one way or the other, from Georgia Pacific and the other companies utilizing similar tactics to manipulate the system. We will continue to fight in any way we can to see that this day arrives.