Johnson & Johnson’s Second Bankruptcy: New And Improved

By: Donald L Swanson

Johnson & Johnson filed bankruptcy back in 2021 (In re LTL Management, Case No. 21-30589, New Jersey Bankruptcy Court).

That bankruptcy is now dismissed—on order of the U.S. Third Circuit Court of Appeals.

So, Johnson & Johnson refiles its bankruptcy (In re LTL Management, Case No. 23-12825, New Jersey Bankruptcy Court).

New and Improved

Here’s what’s new and improved about the second bankruptcy[fn. 1]:

• $8.9 billion—that’s the amount Johnson & Johnson is committing to pay claimants through the new bankruptcy (a $6.9 billion increase over the $2 billion commitment in the first bankruptcy); and
• 60,000—that’s the number of current talc claimants who support Johnson & Johnson’s $8.9 billion commitment and the new bankruptcy.

Sufficient Support?

A recent news report cites a Johnson & Johnson attorney for this:

• The 60,000 claimants are “about two thirds of all claimants”;
• “The company must get to 75% to have a chance at winning approval” for the $8.9 billion deal; and
• “The holdouts are working to block the company from reaching that goal.”

Debtor’s Argument

Johnson & Johnson alleges in its new bankruptcy:

• “There should be no legitimate dispute that this second chapter 11 filing satisfies the good faith filing standard as articulated by the United States Court of Appeals for the Third Circuit.”

Here’s why.

The Third Circuit’ ruling:

• held that Debtor’s prior case was not filed in good faith because Debtor’s financial distress before filing was not sufficiently “immediate” or “imminent”;
• focused on Debtor’s right to seek funding from Johnson & Johnson as a co-obligor under a prior funding agreement—such right granted Debtor “direct access” to Johnson & Johnson’s “exceptionally strong balance sheet”; and
• determined that Johnson & Johnson’s commitment rendered bankruptcy unavailable to Debtor.

The new bankruptcy has a similar funding commitment from Johnson & Johnson. However:

• this new commitment is subject to approval of the Bankruptcy Court and is operative only in the bankruptcy case;
• Debtor must use commercially reasonable efforts to obtain final Court approval of Johnson & Johnson’s commitment and to cause a plan of reorganization to become effective;
• the good faith inquiry must focus on the Debtor—not on related Johnson & Johnson entities—at the time just before the bankruptcy filing occurs; and
• at the time just before the second bankruptcy filing, Johnson & Johnson’s balance sheet and liquidity were not available to the Debtor.

Other factors include:

• the new bankruptcy has a valid bankruptcy purpose: i.e., maximizing assets to satisfy talc claims;
• bankruptcy is the only forum where the Debtor and the claimants can fully, equitably and permanently resolve talc-related claims; and
• the second bankruptcy and its proposed terms:
  • are agreed to by thousands of talc claimants; and
  • are in the best interests of all parties, including the Debtor and all current and future talc claimants.

Conclusion

It will be interesting to see how this second bankruptcy plays out:

• whether the new and improved provisions of this new bankruptcy will be sufficient to carry the day?

———————-

Footnote 1.  Except as otherwise noted, information in this article is take from two separate filings by Debtor in the new bankruptcy case: (i) “Debtor’s Statement Regarding Refiling of Chapter 11 Case” (Doc. 3), and (ii) “Declaration of John K. Kim in Support of First Day Pleadings” (Doc. 4).

** If you find this article of value, please feel free to share. If you’d like to discuss, let me know.