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ARTICLE · 29 NOVEMBER 2022

Plastronics, LTL And The "Texas Two-Step"

Pillsbury Winthrop Shaw Pittman
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The "Texas Two-Step" is a controversial legal maneuver used by businesses to shed mass-tort liabilities in bankruptcy. In a recent article featured in the American Bankruptcy Institute Journal...

United StatesInsolvency/Bankruptcy/Re-Structuring
Andrew V. Alfano
Andrew V. Alfano

Chapter 1 0 o f t h e T e x a s B u s i n e s s Organizations Code permits an entity to undergo a "divisive merger" by splitting into two or more new entities and apportioning the assets and liabilities of the original entity among the new entities pursuant to a plan of merger.1 The Texas statute is the subject of recent controversy because of its use by businesses to shed mass tort liabilities by using the so-called "Texas Two-Step." Step one of the Texas Two-Step involves an entity splitting into two or more new entities. One of the new entities is apportioned liabilities and limited assets (BadCo), and the other new entity is apportioned some or all the assets (GoodCo). Step two involves BadCo filing for bankruptcy. The newly vested liabilities of BadCo are then addressed in the chapter 11 plan process.

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