Lawyers for First Brands have urged a federal bankruptcy judge in Houston to urgently approve a restructuring plan for the automotive parts company, warning that failure to act could force a chaotic liquidation under U.S. Chapter 7 rules.
According to a report by the Financial Times, the plan centers on funding lawsuits against those allegedly responsible for fraudulent practices at the company. First Brands' current management has alleged that former executives fraudulently pledged some assets multiple times as collateral across different loans, creating conflicts over repayment priority.
The company shut 17 plants and cut 4,000 jobs earlier this year as new leadership uncovered what it described as widespread wrongdoing and lenders refused to fund a costly turnaround. First Brands has been working to sell its remaining parts-manufacturing sites as a result.
A central piece of the restructuring plan is a litigation trust designed to pursue potentially $1 billion from First Brands executives who allegedly looted the company to fund a lavish lifestyle of expensive houses and cars, the Financial Times reported.
First Brands founder Patrick James faces criminal fraud charges related to fabricated invoices. Other executives have also pleaded guilty to fraud charges, according to the report.
The company has separately agreed to sell its brand portfolio to PGI for $25 million.
The Houston judge has not yet ruled on the restructuring plan. First Brands has warned that without approval, the company could fall into a disorderly Chapter 7 liquidation that would likely produce worse outcomes for creditors than the proposed restructuring.
