[Arjuna]

This sounds like a similar strategy taken straight out of the Hollywood Accounting [1] playbook:

“On Friday, Reuters reported that J&J secretly launched ‘Project Plato’ last year to shift liability from about 38,000 pending Baby Powder talc lawsuits to a newly created subsidiary, which was then to be put into bankruptcy. By doing so, J&J could limit its financial exposure to the lawsuits.”

[1] https://en.m.wikipedia.org/wiki/Hollywood_accounting

[alistairSH]

At least with Hollywood accounting, the subsidiary is usually created up front. This reads like J&J created the subsidiary after the fact, which IMO, shouldn’t be allowed.

[tedivm]

It's also not uncommon to purchase an existing company, move debt over to it, and then kill it off. Late stage capitalism is an interesting phenomenon.

[chinathrow]

I wonder where the pitchforks are, by now.

https://www.politico.com/magazine/story/2014/06/the-pitchfor...

[sudosysgen]

Things aren't quite bad enough yet. If the current trajectory persists, maybe in 15-20 years?

[wiml]

It seems kind of optimistic or naïve to call this late-stage capitalism. It can get a lot worse if you really unfetter the capitalist machinery.

[tylersmith]

It's a much more interesting trick imo, where Texas allows "divisive mergers" that enable them to split liabilities off into a separate entity. It's not clear to me what the intended benefit of allowing this procedure is, other than this kind of action.

[mijoharas]

Yeah, I'm trying to understand how this is allowed? It seems like it's in incredibly bad faith. Can anyone explain how this can happen?

Taking this to it's extreme, can't you just buy some property so that you owe 1 million dollars, put that debt into it's own company and then say "sorry, that company is bankrupt, I can't pay".

Is that not what's happening here? I feel like I must be missing something.

[haneefmubarak]

IANAL, but IIRC from some reading on this a while back (I could totally be wrong) you have to group the assets that the debt is connected to in the new entity specifically to prevent this. You also can't liquidate the asset connected to the debt and then spin off the new entity while keeping the money from the liquidation.

So I think the way that these rules play out WRT J&J would be that they have to include all assets pertaining to their baby powder / talc business into the new entity, along with the amount of cash that is ordinarily used to operate the business into the spin out. That way the spin out contains what realistically constituted the talc business (net of profits that have been taken or reallocate in the past), so it can be held liable for any debts associated with the same business.

EDIT: looks like in their case they're basically splitting into two companies - one that does pharmaceuticals (drugs, vaccines, etc) and the spinoff that does consumer products (Listerine, shampoo, the baby powder / talc in question, etc) with each part receiving relevant operating assets and associated liabilities, but the pharma side (which will retain the name) keeping the excess cash on hand and other non-operating assets.

[mijoharas]

This makes sense to me now. Thanks for the clarification!

[ccleve]

Sometimes moving money in this manner can be construed as a fraudulent transfer of funds. https://en.m.wikipedia.org/wiki/Fraudulent_conveyance

[sandman008]

Matt Levine has already discussed Texas Divisive Mergers w.r.t. J&J case:

https://www.bloomberg.com/news/newsletters/2021-07-20/money-...

"It does seem … wrong? Like, obviously, if you run a big company that has big liabilities, you’d like to be able to just get rid of the liabilities. And obviously companies have tried, and there are simple approaches (spin off the assets and leave the liabilities, etc.), and those simple approaches don’t work because generally it is bad for a company to be able to just get rid of its liabilities. It would be weird if there was a cheat where doing it as a Texas two-step merger did work."