First Brands, along with its ad hoc group and other key creditors, have agreed to allow for the conditional conversion of certain of the SPV debtors to Chapter 7, but only if safeguards are put in place to prevent value leakage and intercreditor fights spilling into destructive litigation. Meanwhile, a newly filed complaint by Bank of America and other lenders has escalated the battle over ownership of inventory at the center of the case.
Judge Christopher Lopez of the US Bankruptcy Court for the Southern District of Texas is being asked to oversee parallel disputes over lien priority, alleged fraudulent transfers and competing claims to proceeds, with stakeholders warning that uncoordinated action could destroy value.
Support of conversion with conditions
The debtors have said that they would not oppose conversion of certain of the SPV debtors, despite viewing the move as premature, so long as certain protections are put in place to avoid fragmentation of claims and preserve estate value. The ad hoc group and the SPV conflicts manager both also support conversion in principle, but only if the process is structured to ensure coordination between the Chapter 7 trustee and the remaining Chapter 11 estates.
The conflicts manager...
