First Brands Lender Blocked from Accessing Cash from Inventory Sales in Bankruptcy Dispute

A U.S. bankruptcy judge has temporarily barred Aequum Capital Financial II from distributing proceeds from the sale of inventory belonging to bankrupt auto parts supplier First Brands Group, pending resolution of a legal dispute with Bank of America. The June 17 ruling by Judge Christopher Lopez in the Southern District of Texas (Houston) requires Aequum to escrow all cash collected from inventory liquidation until the merits of Bank of America’s lawsuit are decided. The conflict centers on competing claims to collateral tied to more than $40 million in loans and a broader $446 million asset-backed facility secured by First Brands’ inventory and other assets. Bank of America, acting as agent for the asset-backed loan, alleges superior rights to the collateral, while Aequum argues its claim to the proceeds is valid as it seeks to recover funds owed by a First Brands affiliate on a revolving credit line. Aequum has filed a motion to dismiss Bank of America’s lawsuit, contending the claims lack merit. The judge’s decision comes as First Brands continues liquidating assets and shutting operations, having already terminated thousands of employees and closed multiple facilities. The dispute has drawn additional scrutiny from the official committee of unsecured creditors, which is seeking permission to sue Aequum over a $44 million loan issued to a special purpose vehicle linked to First Brands’ founder Patrick James. The funds were allegedly funneled to a company connected to James, who, along with his brother Edward, faces criminal fraud charges and has pleaded not guilty. A representative for Patrick James has denied the allegations. The case, First Brands Group, 25-90399, is pending in the U.S. Bankruptcy Court, Southern District of Texas.