Feds Say Trustee Should Take Over First Brands Case

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Bankrupt auto parts maker First Brands Group should be taken over by a court-supervised trustee who can finish liquidating its assets at a much lower cost than what the company’s high-priced advisers are charging, federal officials argued in a court filing.

Already, the company has paid out advisory fees of at least $245 million, documents show. A trustee “can effectively liquidate assets and pursue these litigation claims at a fraction of the existing costs,” the U.S. Trustee, who acts as a watchdog in corporate bankruptcy cases, said in their request to convert First Brands to a so-called Chapter 7 case. 

A representative for First Brands didn’t return a request for comment.

First Brands filed for bankruptcy last year as allegations of a massive fraud spilled out. It gave up any effort to reorganize itself as a going concern earlier this year when lenders, faced with allegations that much of their collateral was tied to alleged fraud, refused to provide the company with any more money. 

Should the U.S. Trustee’s request win court approval, the current restructuring team, led by law firm Weil Gotshal and Manges and financial adviser Alvarez & Marsal, would be replaced with a trustee.

That person would use First Brands’ only remaining major assets — lawsuits against former company insiders and others — to raise money for creditors.

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First Brands, which owes lenders billions of dollars that it cannot fully repay, has fired thousands of employees and closed dozens of facilities, while factories that produced key parts have been propped up with help from major automakers during a quicker-than-normal sale process.

In the process, it has racked up a pile of advisory and legal expenses.

Fee Spree

Included in the $245 million First Brands paid out to bankruptcy advisers representing the company and its creditors through March is about $77.8 million paid to its main law firm, according to court documents. The company also paid about $13 million in the weeks leading up to its September Chapter 11 filing, including $9 million to Weil, a filing shows.

In general, the fees are in line with amounts large bankrupt companies must pay to get top law firms and investment banks in Chapter 11, where partners at top firms bill more than $2,500 an hour. Bankruptcy fees have risen along with many other types of professional services.

Now, though, the company — which owes lenders billions of dollars that it cannot fully repay — has so little value left that it cannot even pay its “administrative expenses,” bills that include employee wages and legal fees considered vital to a reorganization, the U.S. Trustee said in its motion. So far, First Brands has $233 million in unpaid administrative claims, according to the U.S. Trustee.

First Brands’ current bankruptcy proceedings “improperly favor a limited group of professionals and lenders, who have received the benefits of those unpaid administrative creditors’ work, and who have allowed the cases to drag on long enough such that any pittance offered to creditors will seem a comparable fortune,” the U.S. Trustee’s motion said.

The case is First Brands Group, 25-90399, U.S. Bankruptcy Court, Southern District of Texas (Houston).