U.S. Rep. Emilia Sykes wants to stamp out the Texas Two-Step bankruptcy maneuver
WASHINGTON, D. C. - U.S. Rep. Emilia Sykes, an Akron Democrat, wants to keep corporations from using a bankruptcy maneuver known as the “Texas Two-Step” that helps them evade responsibility for injuries they caused by creating shell companies that assume their liabilities.
Companies that have tried the move include Johnson & Johnson, which is facing claims that its talcum powder causes cancer, and Georgia Pacific, which is facing lawsuits over asbestos exposure.
Under the procedure, corporations with high injury liabilities transform into Texas corporate entities. They then execute a “divisive merger” that splits the corporation into two companies, one saddled with tort liabilities and containing few assets and the other one containing almost all of the assets and no tort liabilities. The company saddled with liabilities files for bankruptcy requiring injured parties to spend years challenging the bankruptcy while the company with the assets goes about business as usual.
Sykes led a bipartisan coalition of U.S. Senators and House of Representatives members this summer to introduce a bill called the Ending Corporate Bankruptcy Abuse Act (ECBA) that would would instruct courts to presume a bankruptcy has been filed in bad faith if it appears to be a Texas Two-Step bankruptcy.
The legislation she introduced with Texas Republican Rep. Lance Gooden and U.S. senators Sheldon Whitehouse, a Rhode Island Democrat, and Josh Hawley, a Missouri Republican, would also block stays of litigation against a debtor’s non-bankrupt affiliates when the debtor engaged in a Texas Two-Step maneuver within the previous four years.
“For too long, greedy corporations have used shady bankruptcy tactics like the Texas Two-Step to avoid compensating innocent Americans they have hurt,” said a statement from Sykes. “The Ending Corporate Bankruptcy Abuse Act will help prevent this bankruptcy abuse and finally hold corporations accountable for their actions.”
“Bad corporate actors shouldn’t be able to dodge accountability by using bankruptcy tricks like the Texas Two-Step, which has been exploited by large corporations to sidestep responsibility for the harms they’ve caused,” said a statement from Gooden. “Our bipartisan bill will stop these abuses and ensure victims get their day in court.”
The legislation, which has been referred to the House Judiciary Committee, is also co-sponsored by its top Democrat, New York’s Jerrold Nadler, as well as Senate Judiciary Chairman Richard Durbin, an Illinois Democrat.
“This fraudulent tactic undermines the bankruptcy system’s fundamental principle of fairness and epitomizes corporate contempt for victims,” said a statement from Nadler.
By: Sabrina Eaton
Source: Cleveland.com