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One of First Brands’ biggest creditors has claimed as much as $2.3 billion “simply disappeared” in the bankrupt auto supplier’s bankruptcy, calling for an independent examiner to investigate its downfall.
The claim from Raistone, a technology group that helped arrange a significant portion of First Brands’ off-balance sheet financing with investors, highlights the scale of losses lenders fear they will suffer as part of the collapse.
The rapid fall of First Brands has impacted global credit markets, the source of billions of dollars of debt that companies rely on to finance their operations. Investors are now closely watching the bankruptcy proceedings.
Raistone said that, with up to $2.3 billion in assets “missing”, appointing an external examiner to conduct an investigation was “essential to maximizing recovery for creditors”.
“Debtors should not be allowed to name the same parties who will investigate their own potential misconduct,” wrote Raistone attorney Richard Jacobsen.
First Brands has appointed two independent administrators to conduct an investigation into its off-balance sheet financing arrangements as part of its bankruptcy. Its current management team, including CEO and founder Patrick James, remains in place.
First Brands also hired law firm Weil, Gotshal & Manges and investment bank Lazard to support it through the bankruptcy process.
The company’s advisers told the court overseeing its bankruptcy that they could not account for the $1.9 billion in assets intended to serve as collateral for First Brands’ creditors.
“The Debtors have already at a minimum admitted to accounting irregularities in this matter, but an investigation by the Debtors into their own potential wrongdoing is woefully insufficient given the magnitude of the potential misconduct at issue,” Jacobsen said in his petition in support of Raistone.
First Brands declined to comment.
Erica Weisgerber, an attorney for the owners and top executives of First Brands, told the court this month: “We will continue to hear allegations… regarding the company and its management. And on behalf of our clients, we want to formally refute those allegations.”
Raistone said Wednesday he was owed at least $172 million. The group, which is partly owned by a fund managed by UBS O’Connor, is tied to investors with $631 million in exposure to First Brands bills, bankruptcy records show.
Sunny Singh, a lawyer for First Brands, said there were “zero dollars” when questioned at a hearing this month in which about $2 billion raised by First Brands through “factoring” — a type of off-balance sheet invoice financing — was being held.
“It’s not here. We don’t have it,” he said. “There’s $12 million in the bank account today. That’s it. There’s nothing else.”
In most U.S. bankruptcies, the judge allows the company and its advisors to direct the case, believing that a debtor-led process maximizes recoveries for all stakeholders.
However, creditors are often concerned that in disputed cases that raise concerns about potential wrongdoing, debtors will not vigorously address their past behavior.
Bankruptcy court often becomes the place to review allegations of misconduct during big business blowups.
The FTX bankruptcy case, for example, involved an examiner who investigated the cryptocurrency exchange’s actions before it slipped into insolvency.
