Texas Two-Stepping Mass Tort Claimants
This strategy is intended to preserve and protect the legacy entity's assets and going concern value against overwhelming mass tort claims while creating a single forum to resolve mass tort claims fairly and equitably.
June 03, 2022 at 02:30 PM
8 minute read
A relatively new and controversial legal tactic is being used by debtors facing mass tort liability using an obscure Texas law that allows a business organization to perform a divisive merger. In a divisive merger, a legacy entity divides itself into two or more new entities and allocates its assets and liabilities—with a larger portion of assets being placed into one entity and the mass tort liabilities and a smaller portion of assets being placed in one or more of the other entities.
The second step is to cause the entity with the mass tort liabilities to voluntarily file a Chapter 11 bankruptcy case, seeking to discharge those liabilities.
This strategy is intended to preserve and protect the legacy entity's assets and going concern value against overwhelming mass tort claims while creating a single forum to resolve mass tort claims fairly and equitably.
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