David J. Kozlowski Discusses First Brands Plan Denial in Bloomberg Law

Morrison Cohen Bankruptcy, Restructuring & Governance Partner David J. Kozlowski was quoted in Bloomberg Law discussing Judge Christopher M. Lopez's denial of First Brands' Chapter 11 plan, a ruling that reinforces the feasibility standard liquidating plans must clear to be confirmed.

First Brands, the auto parts giant that filed for bankruptcy last September with $9 billion in liabilities and just $14 million in cash, staked its recovery on a litigation trust pursuing $25 billion in claims against former CEO Patrick James and other ex-officers. The trust estimated it would need to collect $2 billion for the plan to become effective, which it estimated it could do in two years. This bet rested on lawsuits not yet filed, and delayed by a criminal trial that is still more than a year away.

Judge Lopez of the US Bankruptcy Court for the Southern District of Texas rejected that structure in a bench ruling on August 24, finding, among other things, the record couldn't support the value the plan placed on the trust's claims. With no viable path forward and limited funds remaining, Lopez moved to convert the case to Chapter 7 liquidation.

Dave weighed in on the structural flaw at the center of the ruling stating, “Every plan, every settlement, every resolution has a give and a take. Here the give would be granted on a final basis before we know whether or not the take would even happen."

He added that debtors in First Brands' position have little to work with going forward, “That’s assuming that they could even conceptualize a way to get around the court's concerns.”

Read the full article in Bloomberg Law here.