Amicable restructuring to get out of an asbestos dispute: alternative to Chapter 11

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Asbestos litigation continues to rage through the tort system with no likelihood of regressing in the immediate future. In addition to the inherent costs associated with defending and settling asbestos claims, managing asbestos litigation can be a significant distraction for executives and directors from running their business. Overhanging asbestos litigation can also significantly reduce the value of an otherwise successful and profitable business.

For these and other related reasons, companies have continued to seek ways out of the tort system. Historically, companies facing legacy liabilities due to asbestos had limited options: either continue to sue and settle the lawsuits through the tort system, or find a permanent solution through the process of bankruptcy. Judge Burton Lifland’s decision in In re Johns-Manville paved the way for corporations and their affiliates to get out of the tort system by establishing a trust and then directing all present and future asbestos-related claims to that trust. Manville68 BR 618, 624 (Bankr. SDNY 1986), confirmed, 78 BR 407 (SDNY 1987), confirmed under name. Kane vs. Johns-Manville, 843 F.2d 636 (2nd Cir. 1988). Judge Lifland’s bankruptcy solution to deal with asbestos litigation was welcomed by lawmakers and was later codified under Section 524(g) of Chapter 11, Title 11 of the United States Code.

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