Conspiracy theorist Alex Jones is attempting to take advantage of a new bankruptcy law that has saved many small businesses during the pandemic in a bid to end costly defamation lawsuits against him and his far-right website, Infowars, WSJ Pro Bankruptcy reported. He isn’t alone in leveraging the small-business bankruptcy option to try to weather allegations of wrongdoing or enterprise-threatening lawsuits. A national coin-dealing business and a medical cost-sharing nonprofit have also used the special chapter 11 process when faced with investigations into their practices by state authorities. But bankruptcy specialists who helped craft the small-business law, known as subchapter V, have said it was meant for cash-strapped mom-and-pop businesses, not companies or people seeking to leverage its protections to settle litigation for less than what they could be forced to pay in the civil justice system. Subchapter V has bipartisan support in Congress and is generally viewed by bankruptcy specialists as helping small businesses to restructure debt, get a fresh start and keep their owners in control. It also lowers the costs of the chapter 11 process, which can be prohibitively expensive for small businesses to even attempt. The efficiency of Subchapter V, however, has also raised concerns it could be abused by bad actors. Joe Pack, a lawyer experienced in subchapter V cases, said it makes some of the safeguards for creditors less effective than in traditional chapter 11 cases. “What you effectively have now is an opportunity for anybody who ever gets sued to be able to simply file for subchapter V, and they can value the damages themselves based on what they think they’re willing to pay,” Mr. Pack said.
In related news, the U.S. Trustee cast doubt on far-right radio host Alex Jones’s use of bankruptcy as three companies he once owned prepare for their first day in court Friday, Bloomberg News reported. The DOJ’s bankruptcy watchdog said that the companies’ chapter 11 filing “raises numerous questions — the answers to which may demonstrate these cases are an abuse of the bankruptcy system,” according to court papers filed Thursday. The U.S. Trustee urged a federal judge in Texas to reject a request to appoint former judges to oversee a proposed victim compensation fund. Three small entities Jones once owned are seeking to use bankruptcy to set up a trust to pay damages that may be won in court by relatives of children killed in the 2012 Sandy Hook massacre. The relatives of Sandy Hook victims won key court rulings in Connecticut and Texas against Jones after he called the shootings a hoax, and future trials will determine the size of the damages. “This Motion to appoint the trustees for the Litigation Settlement Trust seems to be just the first step for Debtors to carry out Jones’s and FSS’s scheme of avoiding the burdens of bankruptcy while reaping its benefits,” the U.S. Trustee added in court papers. Read more.
