The court-appointed examiner in First Brands’ Chapter 11 case has found that First Brands operated less as a conventional automotive parts business, and more as a liquidity-generating vehicle used to extract hundreds of millions of dollars for the benefit of its founder, Patrick James, according to the interim examiner’s report.
The report, led by examiner E. Martin De Luca, concludes that there are “colorable” claims for substantive consolidation of the debtor entities, and potential veil piercing claims against James and related entities, amid evidence that assets, liabilities and cash flows were extensively commingled across a sprawling network of affiliates.
The center of it all
At the heart of the examiner’s filings is the conclusion that First Brands and a web of special purpose vehicles and non-debtor entities functioned as a single, integrated enterprise controlled by James and operated as a “conventional commercial enterprise sustained by fraudulent financing transactions.”
Rather than preserving value within the business, the structure allegedly enabled the systematic extraction of liquidity through a variety of methods, including third-party factoring, which was often backed by receivables that were fabricated, duplicated or overstated, off-balance-sheet financing structures where assets were purportedly transferred but may never have been validly...
