Hacker News Reader

Comment by jjallen | Hacker News Reader

Do you really think companies can just avoid all of their liabilities two days before something bad happens and protect all of their assets?

Bankruptcy law is hundreds of years old and is designed to protect creditors actually. That’s why there is a separate court to handle things and involved independent outsiders and judges that oversee things. It works and is used every time there is a financial crisis and thousands of times per day at the individual level.

This sort of thing is specifically prevented and handled by a principle called fraudulent conveyance. This principle causes the court to look back in time to what the assets and liabilities were closer to the time of the start of the financial difficulties of the debtor.

https://en.wikipedia.org/wiki/Fraudulent_conveyance

View on HN

It is a pretty well-documented strategy that has been done several times: https://en.m.wikipedia.org/wiki/Texas_two-step_bankruptcy

Not sure why you are treating it as an absurd concept.

The texas two step is not used to skirt liabilities. Its point is to consolidate all the cases in one court to reduce lawyer headaches and ensure each claimant is paid fairly.

No, it's absolutely and really not. Here...

Is this strategy called the Texas Two-Step because:

1) it assists claimants and plaintiffs (your adversaries) to bond together and present one solid unified case against you, or...

2) because it assists you to elegantly dance around your liabilities?

You know you've lost the argument when your only response to actual facts and analysis is "yeah but what does this name sound like".

No, GP makes a fair point. If it were true that all this does is benefit claimants and plaintiffs, the adversaries of the one taking the action, why would they do it?

Of course it would benefit J&J too. You get to consolidate your cases in one court. You get to be in federal court, which is by conventional wisdom believed to be more defendant-friendly. You get to achieve legal certainty in a shorter period of time. It also benefits all the plaintiffs who weren't early to the party, since they are guaranteed a slice of the pie (if they win), instead of the first few successful plaintiffs eating the whole thing.

> It also benefits all the plaintiffs who weren't early to the party, since they are guaranteed a slice of the pie (if they win), instead of the first few successful plaintiffs eating the whole thing.

The pie is much smaller though. Georgia Pacific was faced with 62,000+ claims. They went through this same process. Spun off their subsidiary. "Pledged" to fund it with an "initial" billion dollars, and that GP would fund all claims.

Never happened. They actually only funded $175M. Less than $3,000 per claimant for asbestos related injuries. Less than $3,000 before legal fees.

And there was nothing defendants could do, because there was no legal obligation that could be created to force GP to fully fund. "That entity is independent and is in bankruptcy. So sad, too bad."

Please see my comment here https://news.ycombinator.com/item?id=36794762

It absolutely is used to reduce payouts. The fact that it limits the potential for very large punitive jury judgments is an argument made by supporters of the texas two step.

It's basically a way of forcing everyone suing you into something akin to a class action, but one where you lose most of the legal rights you would have in a class actions.

It is an absurd concept, but that unfortunately doesn't mean it's implausible.

It's all very nice but companies had hundreds of years to develop strategies how to circumvent these laws.

Reply on news.ycombinator.com