![]() Talc claimants filed motions to dismiss the bankruptcy case for “cause” under § 1112(b) asserting the case was not filed in good faith. Just a couple days after LTL Management LLC’s corporate inception, it filed a Chapter 11 case. The other entity, or the “good company,” held the business assets previously held by Johnson & Johnson Consumer Inc. Prospective costs and liabilities measured in the billions of dollars. One of those entities was LTL Management LLC, or the “bad company,” which held the liabilities relating to talc litigation and a funding support agreement from its corporate parents. After facing numerous talc lawsuits, Johnson & Johnson Consumer Inc., a wholly owned subsidiary of Johnson & Johnson, split into two new entities. In LTL 1, the most famous of the three cases, a Third Circuit panel ordered the dismissal of the Chapter 11 case of LTL Management LLC, an entity created through a “divisional merger” or “ Texas Two-Step.” The decision received heightened attention because the author was the Honorable Thomas Ambro, a highly respected bankruptcy lawyer in Delaware before his appointment to the circuit court bench. All three are mass tort cases, which are significant in terms of the dollar amounts at issue and the claims involved, and in their cutting-edge issues. ![]() This report will describe the rulings in LTL 1, Aearo, and Bestwall and will provide updates on the status of those cases. In a factually similar situation, a third court, In re Bestwall LLC, declined to reverse a bankruptcy court which had issued a preliminary injunction supporting a prospective reorganization. LLC, indicated there must be a “need” for reorganization. One of those courts, In re LTL Mgmt., LLC (LTL 1), stated there must be “financial distress,” and the other court, In re Aearo Techs. ![]() Yet in 2023, several courts addressed the issue, and two courts directed the dismissal of massive Chapter 11 cases imposing what may fairly be characterized as an insolvency requirement. No Code provision explicitly imposes such a requirement. Conventional wisdom suggests there is no requirement that a debtor be “insolvent” to file a case under Chapter 11 or any other chapter of the Bankruptcy Code.
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