Companies Seek Bankruptcy Protection for Asbestos Claims
Filing for bankruptcy has become an all too common way for big companies to avoid paying asbestos injury claims-claims that include mesothelioma . Since the 1980s, more than 70 U.S. companies involved in the manufacturing or production of asbestos-related products have filed for Chapter 11 bankruptcy protection.
Examples of recent Chapter 11 filings include:
- Bondex International Inc (May 31, 2010)
- Specialty Products Holding Corp (May 31, 2010)
- Garlock Sealing Technologies (June 6, 2010)
- Leslie Controls Inc. (subsidiary of Circor) (July 12, 2010)
Together, nearly 1 million asbestos-related claims against these companies are currently pending.
What is Chapter 11 Bankruptcy Protection?
In a Chapter 11 bankruptcy, a company with financial difficulties comes up with a plan to restructure and consolidate its existing debt and reorganize the company. This plan is subject to the approval of the company's creditors and the bankruptcy court. Once the plan is approved and the bankruptcy process is complete, a new company emerges from bankruptcy and creditors with claims against the old company cannot seek repayment from the new company.
In Chapter 11 bankruptcies involving asbestos legal claims, the company sets up a settlement trust to pay out pending and future injury claims. In general, insurance proceeds, stocks, bonds and cash contributions from the company fund the trust. The bankruptcy court will thereafter appoint a trustee, who is in charge of determining which asbestos claims will be paid out by the trust.
Filing for Chapter 11 and setting up a settlement trust is advantageous to companies facing thousands or more asbestos injury claims for several reasons.
First, asbestos claimants are paid much less for their injuries from the settlement trust - usually 5 to 15% of their total worth. This is because there is a limited amount of money in the trust and a large pool of injury victims to compensate. Second, once the trust is set up and the company emerges from bankruptcy, the new company gets to wipe its hands clean of not only pending asbestos injury claims, but also any future asbestos claims that may arise.
For these reasons, many criticize companies for using the bankruptcy process as a means to resolve their legal issues, arguing that it is an abuse of the system. Not only must asbestos injury victims wait years to receive compensation for their injuries, but are also certain to receive far less from the settlement trust than the true value of their claims.
If you suffer from mesothelioma, asbestosis or another asbestos-related injury or illness, contact an experienced attorney today. Even if a company files for bankruptcy protection, you may still be entitled to compensation.