For one thing, this approach allows J&J to determine their maximum liability by only spinning off a certain amount to the subsidiary.
It seems more fair to allow any and all claimants to sue J&J, or join together for a class action lawsuit. If the liabilities outstrip the company's total worth they can then go for bankruptcy of the entire J&J business and split assets proportionately across all liabilities.
> this approach allows J&J to determine their maximum liability by only spinning off a certain amount to the subsidiary.
This is not what they did.
To quote Levine's piece:
> the box where J&J put its talc claims — could draw at least $61.5 billion from J&J to pay off those claims. The point here, the bankruptcy court concluded, was not to keep J&J from having to pay talc claims; the entire value of J&J’s consumer business was still on the line for those claims.
For emphasis: the entire value of J&J’s consumer business was still on the line for those claims
So they weren't bankrupt, then, because they had funding available for the entirety of any claims.
Which is why the judge dismissed the bankruptcy proceedings.
There's more nuance though than that.
> Moreover, New JJCI has agreed to fund the Debtor LLC’s Chapter 11 case and contribute $2 billion into a settlement trust for the benefit of the talc claimants as part of a Chapter 11 reorganization plan.
$2B = a lot less than $61.5B. And you can guarantee that J&J (who refiled the bankruptcy proceeding within 3 hours of it being dismissed) will fight that vehemently.
I like Matt Levine's reporting, but you'll forgive people for taking Bloomberg taking a pro-business position with more than a little grain of salt.
In your heart of hearts, do you really believe that J&J wants to make things right and pay these claimants what they’re owed, or do you think J&J is trying to minimize what they pay out by any means necessary? Note that J&J shareholders likely interpret the latter as their fiduciary duty.
The CEO and eveyone near him is rich, they company going out of business won't affect them. I'm sure they'll be able to get high paying jobs. In fact the negative association with this case would have me wanting to move on
A large portion of the CEO’s wealth is almost certainly tied up in company equity, and this is true for the shareholders by definition. Anyway, it’s not about teaching them anything, it’s about influencing the risk/reward calculus of other companies that are considering skipping steps and releasing unsafe products.
Wouldn't the spin off and it's executives installed specifically for this maneuver have to initiate the lawsuit to pay unfunded liabilities?
Isn't the alternative of directly attacking j&js resources made fantastically harder and more uncertain? The net effect of which is to make claimants more likely to choose the safe path of accepting the figure chosen by the guilty party rather than letting judge or jury directly decide.
> For one thing, this approach allows J&J to determine their maximum liability by only spinning off a certain amount to the subsidiary.
Except that's not what they did. As the article explains, under the J&J agreement the "maximum liability" of the parent to the subsidiary was defined as the entire cash value of the parent.
That extra complexity adds room for plenty of loop holes.
For example, by avoiding bankruptcy any existing liabilities aren't pooled and paid out proportionately along with the lawsuit proceedings. There is also nothing stopping the parent company from moving around funds to limit its "entire cash value".
It allows j&j to only offer what they are willing to lose?
It would different if the court themselves attempted to limit liabilities. If I could limit the cost of my liabilities, you could sure that I’d discount them to the detriment of those that owned the liabilities.
If you think he’s wrong, please explain why. I genuinely would love to hear a well-reasoned critique of his analysis.