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Judge rejects First Brands plan, case converts to Chapter 7 liquidation
The judge said the proposal would defer payment on at least $222 million of debts and required litigation recoveries of $1.9 billion to satisfy administrative claims first.
A U.S. bankruptcy judge rejected auto parts maker First Brands’ Chapter 11 plan that depended on lawsuits against insiders to repay creditors, converting the case to a Chapter 7 liquidation, according to Insurance Journal.
Judge Christopher Lopez said the plan was not acceptable in part because it sought to defer payment on at least $222 million in debts accumulated during the bankruptcy. Lopez also cited limits on the company’s ability to generate recoveries, saying its sales process did not produce the prices that were expected and that First Brands had sold only a few business lines for far less than what it owed.
Under the rejected approach, First Brands would have used litigation trusts, but Lopez said lawsuits would need to bring in $1.9 billion before the company could fully repay administrative claims that must be paid first. Creditors who opposed the plan and the U.S. Justice Department’s bankruptcy watchdog expressed doubt the litigation would produce meaningful recoveries from people tied to the case, including the company’s indicted founder Patrick James.
First Brands filed for bankruptcy in September with about $14 million in cash and more than $9 billion in liabilities. The judge noted the company also borrowed $1.1 billion from existing lenders early in the bankruptcy, but by January it had burned through most of that cash, relying on prepayments from parts buyers such as Ford and GM, and it later sold business units including Horizon towing for $64 million, Toledo Molding & Die for $80 million, and Walbro for $50 million.