Judge: Energy Future not required to include trust fund in Chapter 11 plan

Businesses that are restructuring through Chapter 11 bankruptcy may have to address a range of liability issues not only from creditors in the business world, but also from current and future personal injury claimants. Complex legal factors have to be considered before a judge decides that Chapter 11 protects a company from future injury claims, such as those being pursued against Energy Future Holdings Corp.

While it was still known as TXU Corporation, Energy Future was purchased in the biggest leveraged buyout in history. In April 2014 the utility company filed for Chapter 11 protection, claiming $36.5 billion in assets and $49.7 billion in debts. The company is still trying to develop restructuring plan that is agreeable to creditors.

Personal injury lawyers have meanwhile sought to hold Energy Future accountable for future asbestos claims, as the carcinogen was used as insulation for many years. The company has faced hundreds of such lawsuits in the past.

The personal injury lawyers asked a bankruptcy judge in Delaware to order Energy Future to include in its bankruptcy plan a trust fund for future asbestos lawsuits. Future claimants may not yet know that they were exposed to the asbestos, argued the lawyers.

In his 33-page opinion, the judge decided that creating a trust fund for asbestos claims was an option but not mandatory. Rather, Energy Future should establish a date by which future asbestos-related claims should be filed. The judge also decided that the personal injury lawyers don't have any say in the bankruptcy plan because they aren't yet representing anyone with an asbestos-related claim.

The vast majority of bankruptcies don't involve assets and debts in the billions, but liability issues similar to the ones in this case can arise in the bankruptcies of smaller companies. If you have a range of liability concerns in your own bankruptcy, then an experienced bankruptcy attorney can develop a strategy that protects your interests in the short and long terms.

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