Institutional

Strategic Bankruptcy

What it is

Using bankruptcy proceedings to shed liabilities, silence creditors, and restructure an organization to avoid accountability for past harms.

How it works

Bankruptcy was designed to give honest debtors a fresh start. Strategic bankruptcy exploits this system to shield assets while discharging obligations to victims. Companies can separate profitable operations from liabilities, set up trusts with inadequate funding, and emerge from bankruptcy profitable but judgment-proof.

Real-world examples

  • •Purdue Pharma using bankruptcy to resolve opioid lawsuits while the Sackler family retained billions.
  • •Asbestos companies creating subsidiary entities to absorb liabilities while protecting parent company assets.
  • •Organizations declaring bankruptcy to void union contracts and shed pension obligations.

Ethical guidelines

  • ●Bankruptcy should not be available as a tool to escape accountability for deliberate harm.
  • ●Victims of corporate misconduct should not bear the cost of strategic corporate restructuring.
  • ●Courts should scrutinize asset transfers made in anticipation of liability.

How to defend against it

  • ►Track corporate restructuring that separates profitable operations from liability-holding entities — this may indicate strategic bankruptcy planning.
  • ►Support legislation that prevents bankruptcy discharge of certain categories of harm claims.
  • ►Creditor committees and victim advocacy groups are essential voices in bankruptcy proceedings.

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