First Brands lawsuits aim to claw back billions in bankruptcy fight

Bankrupt auto parts giant First Brands is pushing a bankruptcy plan that hinges on recovering up to $2 billion through lawsuits against insiders and business partners, including founder Patrick James and firms like Jefferies Financial Group Inc. and Onset Financial. The company is seeking court approval on July 28 for a plan that includes a $75 million litigation trust to pursue these claims. However, creditors remain deeply skeptical. The $1.1 billion rescue loan issued to First Brands is trading at just 16 cents on the dollar, signaling extreme doubt about full repayment despite its senior-secured status. Creditors, frustrated after multiple setbacks over the past year, are increasingly inclined to cut losses rather than contribute to the new litigation trust, which would preserve their priority claim on any potential recoveries. Litigation consultant Marc Kirschner, hired by First Brands’ estate, estimates a 70% chance of recouping about $2 billion over the next 2.5 years through litigation, though he acknowledges this represents less than 8% of total estate claims. Kirschner alleges First Brands’ pre-bankruptcy practices involved third-party factoring and supply chain financing that may qualify as Ponzi schemes, potentially invoking the Ponzi Scheme Presumption for fraudulent transfer claims. After repayment of rescue-finance lenders and certain tax claims, lower-ranking creditors who refinanced $3.3 billion of debt at the start of the Chapter 11 case last year would follow. First Brands’ founder and the targeted firms have denied any wrongdoing in previous statements.