J&J might set talc liabilities to file for bankruptcy

According to people familiar with the subject, Johnson & Johnson considers a plan to offload liabilities from Baby Powder litigation into a recently created business that might inquire bankruptcy protection.

During agreement discussions, healthcare conglomerate’s attorneys and plaintiffs’ lawyers talked. The attorneys told lawyers that J&J might go after the bankruptcy plan, resulting in lower payouts for cases that did not settle previously. However, Plaintiffs’ lawyers might not stop J&J from taking this step, but they might seek legal avenues to challenge it later.

Some people said that J&J has not decided to pursue the bankruptcy plan or to abandon the idea ultimately.

J&J faces legal actions from several thousands of plaintiffs claiming its Baby Powder and other talc products included asbestos that caused cancer. The plaintiffs have a lot of women with ovarian cancer and some others suffering from mesothelioma.

The J&J representatives said in a statement provided to Reuters that Johnson & Johnson Consumer Inc. did not decide on any particular action in this litigation besides to continue to defend the safety of talc and prosecute these cases in the system. J&J refused further comment.

How can J&J solve this issue?

Future payouts might be depending on how J&J decides to fund its talc responsibilities.

J&J is now thinking about using Texas’s law called a divisive merger, which allows a firm to split into two entities.

This manoeuvre is famous with legal experts as a Texas two-step bankruptcy. This is a strategy many companies face in recent years.

Some people say that J&J might also explore how to use another mechanism to operate the bankruptcy besides the Texas law.

In 2018, a Reuter`s investigation found that J&J knew that asbestos, also known as a carcinogen, sneaked in its Baby Powder and other talc products. The company decided to stop selling Baby Powder in Canada and the U.S. at the beginning of 2020. This was largely due to unfounded allegations and misinformation about the talc-based product. J&J keeps saying that its customer talc products are safe and confirmed to be asbestos-free.

The blue-chip company faces legal actions from more than 30,500 plaintiffs claiming its talc products were not safe. In June, the U.S. Supreme Court rejected to hear J&J’s appeal that resulted in $2 billion of damages to women claiming the company’s talc produced their ovarian cancer.

Plaintiffs’ lawyers see this bankruptcy strategy as something that is potentially expensive.

Some other examples

In 2017, Georgia-Pacific used the Texas law to shift liabilities to later file for bankruptcy.

Bankruptcy cases filed to determine action, including those related to asbestos, often take years and rarely fully repay creditors. For example, Purdue Pharma is near fixing thousands of opioid claims after a couple of years of bankruptcy negotiations with its plan valued at almost $11 billion.

Another company called DBMP also filed for bankruptcy in 2020 to fix asbestos liabilities. According to a company press release, it announced that the case might take almost eight years.

J&J also faces litigation that recently recalled some spray sunscreen products after finding out that some of them included low levels of benzene.