Tide May Be Turning on Texas Two-Step Bankruptcy Strategy

Companies facing multidistrict litigation mass tort exposure have been utilizing a new technique to protect themselves and their related entities from mass tort claims.

Known as the Texas Two-Step, this creative use of the U.S. Bankruptcy Code gives related entities the benefit of the automatic stay without those companies having to file for Chapter 11 bankruptcy protection themselves.

Two recent court decisions, however, have eroded the ability to use the Texas Two-Step to shield companies from multidistrict litigation, while a third has upheld the technique as viable.

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