Columbia Associate Morgan Drapeau was recently published in ACC South Carolina's newsletter with the article "A Two-Step Forward and One Step Back."
Clint Black’s classic Texas Two-Step tune is a sad analogy for Johnson & Johnson headquartered a long way from the singer’s Nashville home. Nestled on the banks of the old Raritan river in New Brunswick, New Jersey, Johnson & Johnson put it all on the line with its “Texas Two-step” strategy. The law was on their side, but their good run of bad luck persisted and are now facing the potential dismissal of their Chapter 11 filing and a whole lot of liability.
The “Texas Two-Step” is a legal strategy used by some corporations to separate their mass tort liability from their assets. The Two-Step goes a little something like this: Step one, a company with mass tort liabilities becomes a Texas corporation. The newly formed Texas corporation splits into two (or more) separate entities as permitted by the Texas Business Organizations Code, which allows for “divisive mergers.” During this split, one corporation retains all (or most) of its liabilities, while the other retains all (or most) of its assets. Step two, the entity that holds the liabilities files for Chapter 11 bankruptcy and releases all claims against the entity holding its assets. This maneuver protects the new corporation holding assets from mass tort liability. The “Texas Two-Step” has been moderately successful for a handful of corporations.
Access the entire 4th Quarter Newsletter here or download the "A Two-Step Forward and One Step Back" article here.