In a closely watched decision, the Court of Appeals for the Third Circuit ordered the dismissal of the Chapter 11 petition of LTL Management, LLC, the entity created by Johnson & Johnson to hold J&J’s talc-related liabilities in a divisional merger process under Texas law.
Reversing the Bankruptcy Court for the District of New Jersey, the Third Circuit held that LTL’s petition failed to meet the standards for a good-faith bankruptcy filing because the entity was not in financial distress. The court found that LTL had access to at least $61.5 billion in value under a funding agreement with J&J and another J&J unit, which was enough to cover currently projected talc liabilities. The court noted that the financial distress inquiry must focus on the debtor alone, and could not take into consideration the potential effect of a draw on the funding agreement on other J&J entities.
