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https://www.npr.org/2021/10/21/1047828535/baby-powder-cancer-johnson-johnson-bankruptcy

The health products giant used a quirk of Texas state law to spin off a new company called LTL, then dumped all its asbestos-related liabilities — including the avalanche of lawsuits — into the new firm.

LTL filed for bankruptcy last week in a federal court in Charlotte, N.C., a move designed to sharply limit efforts to recover damages for those who say they were harmed by J&J's baby powder.

"Johnson & Johnson doesn't have this liability anymore. They pushed all of it into the company they created just to file for bankruptcy," said Lindsey Simon, a bankruptcy expert at the University of Georgia School of Law.

Can the parent company be forced to pay for the damages after the spin off move was made? I don't know how a company can create a spin off, dump the liabilities there and then let the company fail and not have to pay any cent. Can a new lawsuit be made against J&J to pay for the damages still or is this move totally legal in the U.S.?

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  • Obviously J&J's lawyers don't think this is possible, or at least likely, or they wouldn't have bothered doing this.
    – David Siegel
    Commented Oct 25, 2021 at 0:19
  • @DavidSiegel or they think it's only 90% possible
    – Criticizing Israel not allowed
    Commented Apr 19, 2022 at 11:07

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Can the parent company be forced to pay for the damages after the spin off move was made?

Generally speaking, yes. The transaction, taken as a whole constitutes a fraudulent transfer of the parent company to LTL. The bankruptcy trustee has the power to sue the parent company to make good on this fraudulent transfer, at least under U.S. Bankruptcy law (Title 11, United States Code) and probably under Texas law as well.

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