Not sure if the article is telling the whole story, but if so this seems really unfair for society and really good for company owners.
Because it's one thing when a big conglomerate takes on financial debt in a subsidiary - the banks are sophisticated enough to negotiate whether the corporate parent should also provide a guarantee or to assess whether the subsidiary is a sufficiently good credit risk on a standalone basis.
But in terms of other claims - consumer, labor - the counterparty just sees the corporate brand (in this case J&J) and it isn't viable for them to negotiate a guarantee from the parent.
That's bad enough when the subsidiary does have assets and is a legitimate standalone business. But when you start letting companies split off liabilities and dumping them in companies to then declare bankruptcy, you in practice severely reduce the ability of the court system to function as a mechanism for parties to seek redress.
If this works (I find it incredible that the US legal system would let it work) in the short term great for companies. Though in the long term, making the court system not work as it should could make the economy work less well, as parties become mistrustful of doing business (like in emerging markets where the court system doesn't work well)
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[ 2.2 ms ] story [ 15.5 ms ] threadBecause it's one thing when a big conglomerate takes on financial debt in a subsidiary - the banks are sophisticated enough to negotiate whether the corporate parent should also provide a guarantee or to assess whether the subsidiary is a sufficiently good credit risk on a standalone basis.
But in terms of other claims - consumer, labor - the counterparty just sees the corporate brand (in this case J&J) and it isn't viable for them to negotiate a guarantee from the parent.
That's bad enough when the subsidiary does have assets and is a legitimate standalone business. But when you start letting companies split off liabilities and dumping them in companies to then declare bankruptcy, you in practice severely reduce the ability of the court system to function as a mechanism for parties to seek redress.
If this works (I find it incredible that the US legal system would let it work) in the short term great for companies. Though in the long term, making the court system not work as it should could make the economy work less well, as parties become mistrustful of doing business (like in emerging markets where the court system doesn't work well)