US Bankruptcy Judge Orders Chapter 7 Liquidation of First Brands, Rejecting Litigation-Focused Repayment Plan

A US bankruptcy judge has rejected First Brands’ Chapter 11 restructuring plan, which relied on litigation against insiders to repay creditors, and ordered the conversion of the case to Chapter 7 liquidation.

The rejected proposal had envisioned the establishment of litigation trusts to pursue lawsuits aimed at securing ongoing funds for creditors. However, US Bankruptcy Judge Christopher Lopez deemed the plan unworkable, citing in part its provision to delay repayment on at least $222 million in debt accrued during the bankruptcy proceedings.

Beyond the $222 million, First Brands owes several billion dollars in pre-bankruptcy liabilities. Efforts to divest various business units yielded only a fraction of what is owed to creditors. “Unfortunately, time was not on the debtor’s side. The sales process did not render the types of sales prices I’m sure everybody wanted,” Lopez stated, as reported by Reuters.

First Brands entered bankruptcy in September 2025 with approximately $14 million in cash against liabilities exceeding $9 billion. Early into the proceedings, the company secured an additional $1.1 billion in financing from its existing lenders. However, by January, most of these funds had been depleted, forcing the company to rely on advance payments from major clients like Ford and General Motors to sustain operations.

Judge Lopez noted that the proposed legal actions were expected to generate $1.9 billion, which would not have been sufficient to cover priority administrative claims under bankruptcy law. Both creditors and the US Justice Department’s bankruptcy oversight arm objected to the plan, expressing skepticism that litigation against company insiders, including founder Patrick James, would yield substantial recoveries.

Although First Brands sought a comprehensive buyer for its operations, it ultimately divested only select segments: the towing division Horizon Global for $64 million, Toledo Molding & Die for $80 million, and Walbro for $50 million. “This is one of the most complicated cases in recent history, especially the way it started,” Lopez remarked, according to the Financial Times. “There is nothing left to reorganise.”

To date, First Brands has closed 17 manufacturing facilities and eliminated 4,000 jobs. The company has continued efforts to sell its remaining parts-manufacturing assets following the discovery of widespread misconduct by incoming leadership and lenders’ unwillingness to fund a broader turnaround. Previously, in March, the firm agreed to sell a portfolio of brands to Premium Guard for $25 million, a transaction that followed its failure to secure rescue financing and the loss of key customers.

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