alt Hacker NewsGenerally true, but one key point. Under bankruptcy law, you can give liabilities to a subsidiary, but you have to give the subsidiary enough money to pay the anticipated liabilities. That’s the reason why J&J gave the subsidiary so much money. Otherwise, the bankruptcy would have been dismissed as a fraudulent transfer. The bankruptcy court approved the bankruptcy filing, but on appeal the Third Circuit dismissed the bankruptcy because the subsidiary wasn’t bankrupt enough. Basically, in order to avoid fraudulent transfer law, J&J had to write the subsidiary a big check, but that money made the subsidiary ineligible for bankruptcy.
(Disclosure: I was on the team that won the appeal against J&J on this issue. My comment above is about the public record.)
> So the Texas Two-Step supports the idea that companies can’t just put liabilities in a subsidiary and put it into bankruptcy. The Texas Two-Step is an effort to work around that rule.
Sorry I'm having trouble parsing this because the first and second sentences seem to contradict each other. Or I'm just bad at reading.
> Disclosure: I was on the team that won the appeal against J&J on this issue
That's actually pretty cool. If I may ask, given that LTL was funded with many multiples of its liabilities, why was the bankruptcy appealed?