Attorney Greg Gordon’s new strategy for dodging expensive lawsuits called the “Texas two-step” has been receiving polarizing This two-step strategy entails first splitting a company creating a subsidiary with relatively little assets which will in turn will take on the liability of any pending cases, and then having that subsidiary file for Chapter 11 bankruptcy. This will cause the plaintiffs to be creditors, meaning they have to seek settlements in bankruptcy court. This has proven to have massive implications for corporate liability law as companies are able to pursue lawsuits in bankruptcy court, without having to file for bankruptcy themselves.
Companies love it. Plaintiffs’ attorneys hate it. Judges so far seem split on it.
Georgia-Pacific, Saint-Gobain, Trane Technologies and Johnson & Johnson have all maneuvered the “Texas two-step” in the face of consumer safety lawsuits with potentially billions of dollars in liability.
the purpose was clear: to stop the financial bleeding from lawsuits while avoiding all the downsides of a traditional bankruptcy – to “have your cake and eat it, too,
Source: How a bankruptcy innovation halted sick plaintiffs’ lawsuits