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First Brands Gets New Shot at Creditor Vote on Lawsuit Plan
Judge Sets June 12 Hearing as U.S. Trustee Seeks Chapter 7 Conversion in Houston
Key Takeaways:
- A Houston bankruptcy judge set a June 12 hearing on First Brands’ second attempt to seek creditor approval of a lawsuit-funded payout plan.
- The decision matters because the plan targets recoveries from former executives and lenders while a Chapter 7 conversion could shelve it and shift control.
- Judge Christopher Lopez also will hear arguments June 12 on the U.S. Trustee’s Chapter 7 motion and warned he may rule that day.
Bankrupt auto parts maker First Brands can try, for the second time, to win court approval for a creditor vote of a proposal to raise money through lawsuits against the company’s former top officers and lenders, a judge said June 8.
U.S. Bankruptcy Judge Christopher Lopez agreed to hold a hearing on the vote request June 12. On the same day, he is also scheduled to hear arguments about whether to replace the authors of the lawsuit proposal — the company’s current managers — with a so-called Chapter 7 Trustee. Should Lopez choose the Chapter 7 Trustee option, the company’s payout proposal would likely be shelved.
Last month, Lopez refused to let an earlier version of the payout plan go forward, saying he had too many concerns about the effect of the proposal on the rights of creditors. Instead, Lopez prioritized consideration of a request by the U.S. Trustee, a federal bankruptcy watchdog, to convert the First Brands Chapter 11 case to a Chapter 7 case. That would mean company managers would lose control of First Brands’ assets, including the right to sue anyone involved in the alleged fraud that brought down the company last year.
The company rewrote the plan to eliminate many of its most controversial details, said First Brands attorney Sunny Singh during the June 8 court hearing. The revised plan would now allow all creditors to vote on the plan, give creditors more time to consider the proposal and guarantee that debts First Brands ran up after it filed bankruptcy last year would get priority, as required under federal law.
At a court hearing in Houston on June 8, Lopez warned the company that he may rule on the U.S. Trustee’s Chapter 7 motion June 12 despite all the changes to the new payout plan.
The U.S. Trustee “may get a ruling on that day as well, and I think everybody has to be aware of that.”
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In a filing last week, Charles Moore, First Brands’ chief restructuring officer, argued that a Chapter 7 conversion would leave certain creditors “materially worse off.”
“I believe administrative expense, priority and unsecured creditors would be materially worse off in the event of conversion or dismissal,” Moore said in the filing.
First Brands filed bankruptcy in September as allegations began surfacing of a massive fraud organized by former top managers. The company’s most senior officials now face criminal prosecution related to the company’s collapse.
Since then, First Brands has fired thousands of employees and closed dozens of facilities, while factories that produced key parts were propped up with help from major automakers during a quicker-than-usual sale process.
The company has struggled for months to come up with a fair way to distribute any cash from its last major assets — the lawsuits against insiders and lenders.
The case is First Brands Group LLC, 25-90399, U.S. Bankruptcy Court, Southern District of Texas (Houston).
