First Brands Bankruptcy-Payout Plan Rejected by Federal Judge

A federal judge rejected the bankruptcy-payout plan of defunct auto-parts maker First Brands, concluding the proposal to raise money by suing a long list of insiders and business partners was not realistic.

U.S. Bankruptcy Judge Christopher Lopez sided with a group of objecting creditors, including some who are targets of lawsuits alleging First Brands was undone by fraud. Although company advisors concluded the suits would likely claw back about $2 billion by the end of 2028, Lopez found that wasn’t enough to guarantee payment of the highest priority creditors.

“I still don’t think the plan is feasible,” Lopez said during a court hearing on Monday. Under the US bankruptcy code, creditors who hold so-called administrative claims must be paid in full under a payout plan. Lopez found that it would take too long to pay those claims.

The ruling means Lopez will convert the Chapter 11 case into a Chapter 7 bankruptcy that will be overseen by a court-approved trustee to take over management of any potential lawsuits that could claw back money for creditors. That’s instead of the small army of lawyers and advisors who have for months been selling off the company’s assets and closing its operations.

Weeks before Lopez’ ruling, the market for the auto-parts maker’s $1.1 billion rescue loan showed extreme skepticism that the payout plan would work. The debt, despite being first in line to get repaid, was being quoted at around 16 cents on the dollar, Bloomberg News reported.

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

Top photo: Autolite spark plugs at an auto parts store in Oklahoma City. Photographer: Nick Oxford/Bloomberg.