alt Hacker News> 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?
> 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.
Sorry, I was unclear. You have a law that says that pre-bankruptcy transfers that were made to avoid liability can be voided: 11 USC 548: https://www.law.cornell.edu/uscode/text/11/548. So say J&J put the liabilities into a subsidiary, but didn’t give it a check. The creditors would have been able to void the transfer of liability and give it back to J&J by proving that J&J transferred the liabilities that the subsidiary couldn’t pay.
To work around that, J&J did a particular formulation of the Texas Two-Step where it gave the subsidiary a big check to pay for the anticipated liabilities. The fact that J&J had to do that shows that the fraudulent transfer law does have some teeth. It was the reason J&J had to take the approach that ultimately got the subsidiary kicked out of bankruptcy court.
> If I may ask, given that LTL was funded with many multiples of its liabilities, why was the bankruptcy appealed
So the amicus brief from Public Justice—which I had no involvement with—does a good job of explaining the public interest concerns: https://www.tzlegal.com/wp-content/uploads/2022/07/2022.07.0.... Bankruptcy court is a debtor-friendly forum and gives debtors tremendous leverage over creditors.