Section 524 of title 11 of the United States Code (“Bankruptcy Code”) prevents creditors from recovering pre-bankruptcy debts after plan approval if their recovery was not already provided for in the approved bankruptcy plan. Subsection (g) of section 524 provides a special procedure for debtors previously engaged in the sale or production of asbestos-containing products to restructure while ensuring those injured through exposure to those products are compensated. In particular, section 524(g) provides for the formation of a trust that can settle asbestos related tort claims after the plan has been confirmed by a bankruptcy court. These trusts are funded in whole or in part by the securities of the debtor, which is required to make future payments to the trusts. In return, the debtor receives an injunction barring direct claims against it for asbestos related injuries.
This memorandum serves as a primer on asbestos settlement trusts created under section 524(g) of the Bankruptcy Code. Part I provides a historical background on these trusts and the reasons for their conception, focusing on the Johns-Manville bankruptcy case. Part II provides an overview of the most notable features and elements of these trusts and provides case examples for each core element. Part III provides specific case examples of debtors attempting to subvert the normal bankruptcy process by limiting or broadening the scope of certain elements.