Question

Chapter 11 Bankruptcy (BK)

In re Johns-Manville Corp.

36 B.R. 727 (Bkrtcy. N.Y. 1984)

Case:  

Johns-Manville Corp. was (is) a Fourtune 500 company, and was deemed a paradigm of success in corporate America by the financial community. However, the company produced a product that was poison—asbestos. (Moreover, Manville knew it was poison, and had know it since the 1930s (http://www.ewg.org/research/asbestos-think-again/industry-hid-dangers-decades (Links to an external site.)Links to an external site.), and it hid the danger. By 1982 approximately 16,000 lawsuits were pending against Manville, and it anticipated a further crushing economic burden by the filing of an even more staggering number of suits by those who had been exposed but who will not manifest the asbestos-related diseases until some time during this future period (20-30 years as the disease manifests itself--“the future asbestos claimants”). Approximately 6,000 asbestos health claims were estimated to have arisen in only the first 16 months since the filing date. The burden was compounded by the insurance industry’s general disavowal of liability to Manville on policies written for this very purpose.

Procedure:

JM petitioned for a pre-emptive bankrupcy under Chapter 11; attorneys representing some of the people sickened by JM’s product moved to dismiss the petition.

Issue:  

Can JM pre-emptively declare bankruptcy and discharge future cases? Why? or Why Not?     

Case Questions:

What did Manville want to do here, and why? (Analyze the purpose of the BK declation and the reason behind it.)

How does this case demonstrate the fundamental purpose of Chapter 11 as opposed to Chapter 7 BK filings?

The historical background here is that Manville knew from at least 1930 that asbestos—used in many industrial applications—was a deadly carcinogen, and it worked diligently for decades to conceal and obfuscate the fact. What “good faith” argument was raised by the movants in this case?

Case Study Directions:

Give bacground information describing bankruptcy, types of bankruptcies, and the purpose of bankruptcy filings.

Can JM pre-emptively declare bankruptcy and discharge future cases? Why? or Why Not? You also need to provide analytical and critical responses to the three (3) Case Questions listed above.

Answer 1

Answer:

Manville want to do here is that he want to declare bankruptcy for his organization and wants to be free from all the legal issues raised against the organization.

Manville wants to declare bankruptcy because he wants to be free from the large number of suits against his organization. So he wants to explore bankruptcy as a approach to get free from the law suits raised against his organization by the consumers.

The purpose of bankruptcy declaration is that the organization is not able to run and achieve the minimum profit or revenue based on which the organization can be run. Thus bankruptcy declares when the organization is financially not in a condition to run the business and he does not foresee any future hope based on which the organization can be survived.

So in order to avoid any further damage to the firm and protect it to the best possible extent, the bankruptcy process is used for the firms.

This case demonstrates the fundamental purpose of Chapter 11 as opposed to Chapter 7 BK filings because this case shows that the bankruptcy process used for misleading purpose for the organization. The Bankruptcy process is not used for its genuine purpose and bankruptcy being explore for the commercial purpose and personal interest and benefit purpose by the Manville. Thus the process of bankruptcy being described in the chapter 7 is not being explored here and it is being explore in the opposite sense as discussed in chapter 11.

The historical background here is that Manville knew from at least 1930 that asbestos—used in many industrial applications—was a deadly carcinogen, and it worked diligently for decades to conceal and obfuscate the fact. The “good faith” argument was raised was that the people sickened by the product of John Manville. This argument prevents the pre declaration of bankruptcy.