First Brands Creditors Demand Separation of Advisers
Dispute Centers on Oversight of SPVs and Asset Claims
Key Takeaways:
- Creditors led by Aequum Capital sought new independent advisers for First Brands’ SPV units after alleging conflicts of interest in the company’s sprawling Chapter 11 case.
- The request follows fraud allegations against former CEO Patrick James and concerns that disputed records and $2.5 billion in off-balance-sheet debt could pit creditor groups against one another.
- The lenders asked a U.S. bankruptcy judge to remove current advisers from SPV oversight and allow one unit to exit the case as litigation and repayment talks continue.
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A group of First Brands Group creditors is demanding new, independent advisers for company units that issued nearly $2.5 billion in off-balance-sheet debt, claiming conflicts of interest threaten to disrupt the sprawling insolvency case of the auto parts maker.
Aequum Capital Financial and other lenders owed more than $200 million argue that the same set of lawyers and advisers cannot represent the interest of First Brands while simultaneously overseeing the off-balance-sheet units, known as the Special Purpose Vehicle debtors, or SPVs. As the case goes on, First Brands and the SPVs will be fighting over assets and cash because of the way money and automobile parts flowed between them, the lenders said infiled Nov. 12.
The founder and former CEO of the company allegedly used fake invoices and double-pledged assets to fraudulently convince investors to lend the company billions of dollars, according to court documents. The fraud allegations, along with incomplete and confusing financial records, increase the chances that different sets of creditors will wind up fighting over the same set of assets.
First Brands filed bankruptcy in September with just $14 million in cash in the bank, even though the company had about $5 billion in revenue in 2024. Since coming under court protection, company advisers have been trying to untangle the firm’s financial woes as they search for a way to repay as many creditors as possible.
UMB Bank, the agent for lenders to one of the SPVs,in court papers that new lawyers and day-to-day managers are necessary to prevent creditors of the SPVs from being harmed.
Three of the most prestigious restructuring firms in the U.S. have taken over management of First Brands since founder Patrick James resigned amid accusations of misconduct. Law firm Weil, Gotshal & Manges is handling the bankruptcy case, restructuring advisory Alvarez & Marsal is providing day-to-day management and Lazard Frères & Co. is acting as First Brands’ investment banker.
All three should be removed from oversight of the SPVs, lenders told U.S. Bankruptcy Judge Christopher Lopez. Representatives of the three firms did not immediately respond to requests for comment. Aequum has also asked that the unit that owes it money be completely removed from the bankruptcy case so the lender can try to get repaid separately.
First Brands has sued James, seeking to claw back hundreds of millions of dollars he allegedly took from the company.
RELATED:First Brands Founder Wins Control of Personal Bank Accounts
Lopez, who is overseeing First Brands’ Chapter 11 case, has said that transfers between the company and James, a personal trust and businesses were “highly questionable.”
James has denied wrongdoing. In statements to the media, the executive has said he always acted ethically.
The lawsuit will proceed over the coming months as the company and its creditors negotiate over the best way to repay First Brands' debts.
The case is First Brands Group v. Patrick James,, U.S. Bankruptcy Court, Southern District of Texas (Houston).
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