The chief legal officer of Georgia-Pacific spinoff Bestwall admitted Thursday that the company is exploring more bankruptcy filings, but denied the contention by asbestos claimants waiting on settlements that it’s going to abandon the nearly 9-year-old Chapter 11 case. In a high-stakes hearing before the U.S. Bankruptcy Court for the Western District of North Carolina, the legal leadership of Bestwall LLC defended the company’s ongoing restructuring strategy against a mounting effort by asbestos victims to strip the company of its "debtor-in-possession" status. The motion, filed by the Official Committee of Asbestos Personal Injury Claimants, seeks the appointment of an independent Chapter 11 trustee, alleging that the current management has intentionally stalled the proceedings to avoid paying out billions of dollars in liabilities.
The testimony from Bestwall’s chief legal officer comes at a critical juncture for the company, which was created in 2017 through a controversial corporate restructuring maneuver known as the "Texas Two-Step." By utilizing a divisional merger under Texas law, the manufacturing giant Georgia-Pacific (GP) split into two distinct entities: "New GP," which retained the company’s vast assets and profitable consumer products operations, and Bestwall, which was saddled with the entirety of the company’s legacy asbestos liabilities. Since its inception and subsequent bankruptcy filing in November 2017, Bestwall has remained in a state of legal stasis, leading claimants to argue that the process is a sham designed to protect the parent company’s assets rather than compensate victims.
The Push for an Independent Trustee
The central conflict of Thursday’s hearing revolved around the claimants’ demand for a neutral third party to take the reins of the bankruptcy estate. Attorneys representing the asbestos claimants argued that Bestwall’s management suffers from an "irreconcilable conflict of interest." Because Bestwall’s leadership is closely tied to Georgia-Pacific and its parent company, Koch Industries, the claimants contend that the company has no genuine incentive to reach a plan of reorganization that provides fair value to those suffering from mesothelioma and other asbestos-related illnesses.
Under Section 1104 of the Bankruptcy Code, a court may appoint a trustee "for cause," including fraud, dishonesty, incompetence, or gross mismanagement. The claimants’ committee argued that nine years of inaction constitutes a "gross mismanagement" of the estate’s duties. They highlighted that while the bankruptcy has dragged on, thousands of original claimants have passed away without seeing a resolution.
Bestwall’s chief legal officer countered these assertions by emphasizing the complexity of the "estimation" process. The company maintains that it is working toward a "fair and sustainable" trust system that would mirror those seen in other major asbestos bankruptcies, such as Johns-Manville or Garlock Sealing Technologies. The officer testified that the company is currently evaluating "all available legal avenues," which includes the possibility of additional bankruptcy filings for related entities if it helps streamline the global resolution of claims.
A History of the "Texas Two-Step" Controversy
To understand the current friction in the Bestwall case, one must look back at the 2017 restructuring that set the stage. The "Texas Two-Step" allows a company to divide its assets and liabilities into two new companies. In Georgia-Pacific’s case, the goal was to isolate the asbestos litigation—stemming from its "joint compound" products sold decades ago—into Bestwall.
Once Bestwall was formed, it immediately filed for Chapter 11 protection in North Carolina. This move effectively stayed all pending asbestos lawsuits against Georgia-Pacific nationwide, as the bankruptcy court issued an injunction protecting the non-bankrupt parent company. This tactic has since been attempted by other major corporations, most notably Johnson & Johnson in its efforts to resolve talc-related liabilities through its subsidiary, LTL Management.
However, the legal landscape for this strategy has shifted recently. While the Fourth Circuit, which oversees the Bestwall case, has historically been more permissive toward such filings, other appellate courts have begun to push back. The Third Circuit’s dismissal of the LTL Management bankruptcy—on the grounds that the entity was not in "financial distress" because it had a multi-billion dollar funding agreement from its parent—has emboldened Bestwall’s critics.
Chronology of the Bestwall Bankruptcy (2017–2026)
The timeline of the Bestwall case illustrates a decade-long legal battle that has tested the limits of bankruptcy law:
- November 2017: Bestwall LLC is created via a divisional merger and files for Chapter 11 bankruptcy in the Western District of North Carolina.
- 2018–2019: The court grants a preliminary injunction, halting thousands of asbestos lawsuits against Georgia-Pacific. Claimants file motions to dismiss the bankruptcy as a "bad faith" filing, but the motions are denied.
- 2020–2021: The parties engage in a protracted discovery process regarding the "estimation" of total asbestos liabilities. Bestwall argues its liabilities are significantly lower than what the claimants suggest.
- 2022: A major ruling on the "Texas Two-Step" in other jurisdictions begins to influence the rhetoric in the Bestwall case. Claimants argue that Bestwall is not in financial distress because it has a funding agreement with Georgia-Pacific.
- 2023–2024: The "Estimation Trial" phase begins. This phase is intended to determine the total amount of money needed to fund a settlement trust. The process is marred by disputes over data privacy and the methodology for projecting future claims.
- 2025: Frustrated by the lack of a reorganization plan, the Claimants’ Committee files a formal motion for the appointment of a Chapter 11 trustee.
- June 2026: Bestwall’s chief legal officer testifies in defense of the company, admitting to exploring further filings while denying any intention to abandon the current case.
Supporting Data and Financial Stakes
The financial implications of the Bestwall bankruptcy are staggering. According to court filings, Georgia-Pacific has provided Bestwall with a funding agreement that ensures the subsidiary remains solvent throughout the bankruptcy process. This agreement technically provides Bestwall with access to billions of dollars—the same amount of liquidity as Georgia-Pacific itself.
The claimants argue that this very liquidity proves the bankruptcy is unnecessary. They point to the following data points:
- Estimated Claims: There are currently over 60,000 pending asbestos claims against Bestwall, with thousands more expected to be filed over the next 30 years as latency periods for asbestos diseases expire.
- Funding Agreement: The funding agreement between GP and Bestwall is uncapped, meaning GP is contractually obligated to provide whatever funds are necessary for Bestwall to pay its administrative costs and eventually fund a settlement trust.
- Legal Costs: It is estimated that Bestwall has spent upwards of $300 million in professional fees (lawyers, consultants, and experts) over the last nine years, a figure the claimants argue could have been used to settle thousands of individual cases.
Bestwall’s defense is rooted in the belief that the tort system—where cases are decided by juries in various state courts—is "broken" and "inefficient." They argue that a bankruptcy trust is the only way to ensure that future claimants (those who have been exposed but are not yet sick) receive the same compensation as current claimants.
Official Responses and Stakeholder Reactions
The reaction to the CLO’s testimony has been polarized. A spokesperson for Georgia-Pacific issued a statement following the hearing, reiterating the company’s commitment to the bankruptcy process. "Bestwall remains dedicated to the Chapter 11 process as the only viable means to fairly and permanently resolve all asbestos claims. Our goal is to create a 524(g) trust that provides consistent compensation for all valid claims, both now and in the future."
Conversely, the attorney for the Claimants’ Committee, representing those suffering from asbestos-related diseases, was scathing in his assessment. "What we heard today was an admission of a shell game. They are talking about ‘exploring more filings’ while people are dying every day waiting for justice. This isn’t restructuring; it’s a war of attrition. An independent trustee is the only way to stop the bleeding and force a fair settlement."
Legal analysts have noted that the CLO’s admission regarding "more bankruptcy filings" could be a strategic hint. It may suggest that the company is considering a "re-filing" in a different jurisdiction or involving different subsidiaries to take advantage of favorable rulings or to reset the clock on certain litigation hurdles.
Broader Impact and Legal Implications
The outcome of the trustee motion in the Bestwall case will likely have ripple effects across the entire landscape of mass tort bankruptcy. If the court decides to appoint a trustee, it would send a powerful signal to other corporations that the "Texas Two-Step" strategy does not grant them indefinite control over the settlement process. It would effectively pierce the corporate veil that has protected Georgia-Pacific from direct litigation for nearly a decade.
Furthermore, the case touches on a growing debate in the U.S. Congress. Several lawmakers have introduced the "Non-Debtor Release Prohibition Act," which aims to prevent profitable companies from using the bankruptcy of a subsidiary to shield themselves from liability. The Bestwall case is frequently cited in congressional hearings as "Exhibit A" for why the bankruptcy code needs reform.
As the hearing concluded, the presiding judge took the matter under advisement, noting the "extraordinary duration" of the case. Whether the court will take the rare step of ousting the company’s management in favor of a trustee remains to be seen. However, the testimony provided on Thursday has made one thing clear: the battle over Bestwall is no longer just about asbestos claims—it is a referendum on the ethics and limits of modern corporate restructuring.
For the thousands of claimants, the wait continues. For the legal community, the Bestwall saga remains a landmark study in the intersection of corporate law, bankruptcy, and social justice. As the case moves into its tenth year, the eyes of the legal world remain fixed on North Carolina, waiting to see if the "Two-Step" will lead to a resolution or continue in a perpetual loop of litigation.
