The circumstances surrounding James Hardie Industries Limited's transfer of subsidiaries with asbestos related liabilities to the Medical Research and Compensation Foundation, have received substantial publicity over a number of years. The Foundation was described in ASX releases as "fully funded" but, within months, it became apparent that was not the case.

The James Hardie group manufactured and sold products containing asbestos for many years, resulting in a large number of compensation claims against two subsidiaries of JHIL, by employees and others who contracted various lung diseases as a result of exposure to asbestos.  Those subsidiaries faced, and continue to face, substantial liabilities over a long period of time.  

In February 2001, in an attempt to separate the liability for asbestos claims from JHIL's principal business, the board of directors of JHIL resolved to establish the Medical Research and Compensation Foundation. JHIL transferred the shares in the two subsidiaries with exposure to asbestos claims to the Foundation, and agreed to provide limited funding for a period, in return for a Deed of Covenant and Indemnity (DOCI) from the Foundation. The result was that the Foundation would be responsible for all claims arising from asbestos exposure affecting the James Hardie group.

James Hardie then announced the establishment of the Foundation to the ASX, stating that it would have "sufficient funds to satisfy all future legitimate claims", was "fully funded", "provided certainty for claimants and shareholders" and was "the best resolution for all stakeholders".  Similar statements were repeated in subsequent ASX announcements and investor presentations. Details of the DOCI were not provided to the ASX until limited disclosure was made in the 2001 annual report. 

Within a matter of months, it became evident that the Foundation was substantially underfunded.