👉 Background: Johnson & Johnson is the consumer giant that sells everything from the Band-Aid brand to medical devices. And one of their most popular products has been their baby powder.

👉 What happened: For many years, consumers have alleged that J&J's talc products, including the baby powder, caused them cancer due to asbestos. Now, Johnson & Johnson has agreed to settle a lawsuit with 60,000 claimants for a whopping $8.9m billion USD ($13.2 billion AUD).

👉 What else: Johnson & Johnson claims that the settlement is NOT an admission of wrongdoing. But the quirky part is, before the settlement, Johnson & Johnson actually tried to force itself into bankruptcy to avoid the settlement altogether. Yikes!

What's the key learning?

💡 Sham bankruptcies in the US are becoming a popular way to avoid liabilities. When the litigation started, Johnson & Johnson concocted a top-secret plan to avoid paying compensation. It's called the Texas Two-Step Bankruptcy.

• Step 1: Split Johnson & Johnson into two companies.
• Step 2: Shift the talc litigation liability into the new entity
• Step 3: Declare bankruptcy in the new entity, which held the talc liability

💡This would mean claimants couldn’t recover any money from a bankrupt company with no assets.

💡But the courts rejected this secret plan, which meant Johnson and Johnson had nowhere to hide. And suddenly, their settlement offer jumped from $2 billion USD to $8.9 billion USD.

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