---
title: The Texas two-step, explained
description: The Texas two-step is a maneuver companies use to shuffle liabilities and shield assets.
---

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# [The Texas two-step, explained](https://hs-sbup.thehustle.co/news/03022022-texas-two-step)

 Written by [Juliet Bennett Rylah](https://hs-sbup.thehustle.co/news/author/juliet-bennett-rylah) | Mar 2, 2022 10:28:08 AM

The Texas two-step is [a dance](https://www.youtube.com/watch?v=-g6X7KRuQ44). But it’s also a bankruptcy maneuver, legal in Texas, that some US legislators want to outlaw.

#### **The backstory**

Johnson & Johnson is facing [38k+](https://www.reuters.com/legal/transactional/judge-allows-johnson-johnson-talc-unit-remain-bankruptcy-court-2022-02-25/) lawsuits alleging that its talc baby powder led to medical issues including ovarian cancer and mesothelioma. (You’ve probably seen the commercials…)

Documents examined by [Reuters](https://www.reuters.com/investigates/special-report/johnsonandjohnson-cancer/), some dating back decades, showed that J&J’s talc occasionally tested positive for asbestos and that the company didn’t tell the public or regulators.

J&J disagrees, claiming its talc baby powder is [safe](https://www.jnj.com/our-company/johnson-johnson-consumer-health-announces-discontinuation-of-talc-based-johnsons-baby-powder-in-u-s-and-canada), and plans to appeal cases in which jurors have already awarded money to plaintiffs.

**Meanwhile in Texas…**

Texas defines mergers as either 2 companies coming together or one company splitting up — that’s called a [divisive merger](https://www.creditslips.org/creditslips/2021/07/the-texas-two-step.html).

The so-called two-step has, well, 2 steps:

**Step 1:** A company goes to Texas and splits into 2 or more new companies. One gets the assets, the other the liabilities. In this case, J&J — headquartered in New Jersey — spun off a new subsidiary in Texas called LTL Management last fall, shielding J&J’s assets.

**Step 2:** The company with the liabilities files for bankruptcy, which LTL did.

#### **Now what?**

Attorneys representing the LTL plaintiffs filed a motion to dismiss LTL’s bankruptcy, calling it an abuse of bankruptcy laws that could encourage other companies to do the same.

But last week, a US bankruptcy judge threw out that motion, [saying](https://www.yahoo.com/now/j-j-controversial-bankruptcy-strategy-161420976.html) that a court-supervised [trust settlement agreement](https://www.dhtrustlaw.com/trust-settlement-agreement-guide-for-2021/) would be better and faster for plaintiffs than jury trials. LTL has already [established](https://www.prnewswire.com/news-releases/johnson--johnson-takes-steps-to-equitably-resolve-all-current-and-future-talc-claims-301400916.html) a $2B trust to resolve claims.

For now, however, most lawsuits will go nowhere while a settlement is negotiated.

**As for the fate of the two-step…**

… some lawmakers want to end it, including Illinois Sen. Dick Durbin who [called](https://www.npr.org/2022/02/25/1083061992/johnson-johnson-wins-court-battle-bankruptcy-baby-powder) it a “get-out-of-jail-free card for some of the wealthiest corporations on earth” — J&J’s market cap is ~$430B — and [says](https://www.ft.com/content/2684c166-d0b7-4329-8714-84d506b99f15) a draft bill is forthcoming.

[View full post](https://hs-sbup.thehustle.co/news/03022022-texas-two-step)

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