First Brands Pushes Court to Approve Litigation-Focused Bankruptcy Plan

First Brands Group is asking a federal bankruptcy judge to approve a controversial Chapter 11 plan that could turn the failed automotive-parts company into a litigation vehicle for creditors seeking to recover billions of dollars.

The proposal centers on a trust that would pursue claims against former executives, lenders and other parties allegedly connected to the financial misconduct preceding First Brands’ collapse. According to the Financial Times, senior lenders have agreed to share potential litigation recoveries with junior creditors, an arrangement designed to build support across different levels of the company’s capital structure.

Without the settlement, First Brands warns that its remaining bankruptcy cases could be converted to Chapter 7. That outcome could leave general unsecured and other junior creditors with little or no recovery.

A bankruptcy plan built around lawsuits

Most of First Brands’ operating assets have already been sold or placed on a path toward liquidation. The remaining value is increasingly tied to legal claims arising from the company’s alleged financing fraud.

The proposed litigation trust would receive funding to investigate, prosecute, and potentially settle those claims. Creditors would then share in recoveries according to a negotiated distribution waterfall.

The Financial Times reports that the trust could pursue approximately $1 billion in claims against insiders and other defendants. Separate lawsuits connected to the bankruptcy seek substantially larger damages, although the amount ultimately recoverable remains uncertain.

That uncertainty is critical. Litigation can take years, defendants may challenge the claims, and even a successful judgment does not guarantee that sufficient assets will be available for collection. Testimony presented during the bankruptcy proceedings reportedly projected that meaningful recoveries might not arrive until 2028.

Justice Department watchdog opposes the plan

The Office of the United States Trustee, the Justice Department division responsible for overseeing the bankruptcy system, has challenged the restructuring.

Its objection focuses partly on whether the plan complies with bankruptcy rules governing administrative and priority claims. The case reportedly includes nearly $2 billion in those higher-ranking obligations.

First Brands raised approximately $1.1 billion in bankruptcy financing to keep the company operating and conduct asset sales. However, those sales have reportedly generated only about $200 million. At the same time, the post-bankruptcy loan has traded at roughly 18 cents on the dollar, indicating how deeply the market has discounted anticipated recoveries.

U.S. Bankruptcy Judge Christopher Lopez heard closing arguments on August 7. As of this writing, the publicly available docket does not show a final confirmation ruling.

Criminal case continues alongside the bankruptcy

The restructuring is unfolding as federal prosecutors pursue a separate criminal case against First Brands founder Patrick James and his brother, former company executive Edward James.

A January indictment alleges that the brothers used falsified invoices, concealed liabilities and double- or triple-pledged collateral to obtain billions of dollars from lenders and financing partners. Both men have pleaded not guilty.

Former First Brands finance executive Peter Andrew Brumbergs pleaded guilty and agreed to cooperate with prosecutors. Former CFO Stephen Graham subsequently pleaded guilty to bank fraud, wire fraud and related conspiracy charges.

The allegations remain allegations against Patrick and Edward James unless proven in court. Their criminal trial is currently expected in 2027.