| Nancy Lane/MediaNews Group/Boston Herald via Getty Images |
| Where companies go to fail
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| They say everything is bigger in Texas… except for corporate bankruptcy settlements.
The state known for big things makes a notable exception when it comes to bankrupt companies settling outstanding debts.
Thanks to a nifty bit of corporate restructuring — aptly named the Texas Two-Step — companies incorporated in the Lone Star State are able to settle their liabilities for a fraction of the price while shielding their most valuable assets from debt collectors.
But the controversial bankruptcy tactic is now being called into question by multiple US senators who filed a letter questioning the “abusive strategy” after reporting by Insider’s Dakin Campbell and Nicole Einbinder.
The additional attention could upend the way major companies file for bankruptcy going forward.
So how’d we get here?
A refresher: |
- In August, Nicole and Dakin published a report on Corizon Health, once the nation’s leading prison health provider, which split itself into two entities as lawsuits mounted against it over claims of negligent care and prisoner deaths on its watch. One company, YesCare, got the active prison contracts; the other, Tehum, got saddled with most of Corizon’s debt and went into bankruptcy.
- Later that month, Tehum reached a tentative bankruptcy deal in Texas’s southern district that was later disclosed to be $37 million, a fraction of the company’s debt.
- In early October, Dakin and Nicole reported on a court document claiming Judge David Jones, who mediated Tehum’s settlement deal, was in a romantic relationship with YesCare attorney Elizabeth Freeman, calling into question the deal.
- Jones, a prominent player in the bankruptcy space, was initially recused from his cases and put under investigation before resigning a couple of days later.
- Corizon’s bankruptcy deal, meanwhile, was delayed on October 18 as a judge raised concerns about the deal, saying it “has to be reconsidered.”
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| Adria Malcolm for Insider |
| Beyond the complex financial maneuvering involved in the Two-Step, it’s important to remember the people impacted by this.
Like Hector Garcia, a father of four who collapsed three days into his six-day jail sentence and died soon after receiving shoddy medical care from Corizon, according to his family’s suit. His family could have received just $5,000 under Corizon’s original settlement deal.
Johnson & Johnson, which is facing more than 40,000 lawsuits from customers alleging its talc-based baby powder caused cancer, also attempted the Two-Step twice and is reportedly considering a third try.
Ending the Two-Step likely won’t stop companies from attempting to protect their assets and limit their liabilities during bankruptcy filings. But it would be a big step toward preventing them from skirting paying people they’ve impacted. |
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