Working capital provider Katsumi Global says it is owed more than US$1.7bn following First Brands’ bankruptchy, court documents show, as creditors seek to locate billions of dollars they say have disappeared from the company’s factoring programmes.
US auto parts supplier First Brands, which filed for bankruptcy protection in Texas in late September, owes around US$2.3bn to creditors arising from factoring programmes, court documents show.
Lawyers representing First Brands told a hearing on October 1 they believed around US$1.9bn of that amount had not been turned over to the factoring companies, and an independent special committee was appointed to investigate the potential irregularities.
Katsumi is owed around US$1.75bn from outstanding receivables it purchased as part of those programmes, a lawyer for the Michigan-headquartered working capital and private credit lender told the court.
A transcript of the hearing released on October 8 shows a Katsumi entity served as the buyer representative and servicer for receivables purchases, acting “on behalf of a number of other investors”.
Bank ABC and ING Belgium each said in separate filings they purchased rights to certain receivables from Katsumi. Neither bank immediately commented when contacted by GTR.
Katsumi, owned by a joint venture between Japanese financial institutions Mitsui & Co and Norinchukin Bank, did not immediately comment when contacted.
The transcript was disclosed as an exhibit to an emergency motion submitted by working capital platform Raistone, which has also been left with unpaid receivables from factoring programmes provided to First Brands.
Raistone’s motion, filed on October 8, argues that the court should appoint an examiner to conduct an independent investigation into the allegedly missing funds.
Up to US$2.3bn attributable to First Brands’ factoring arrangements “has simply vanished”, it says.
Raistone’s lawyers cite an email they sent to First Brands’ representatives asking two questions: whether the company “actually received US$1.9bn (no matter what happened to it)”, and how much has been transferred to segregated accounts opened to protect factoring creditors’ funds.
“We don’t know,” First Brands’ counsel replied. “US$0”.
Raistone – which made as much as 80% of its revenue from its business with First Brands, and laid off dozens of employees following the company’s bankruptcy – argues that the special committee investigation is “woefully insufficient given the magnitude of potential misconduct at issue”.
“Not only have the debtors appointed the special committee members responsible for investigating the debtors’ own wrongdoing, but, based on the debtors’ representations, the special committee has not even retained separate, independent counsel to assist them in the proposed Investigation,” it says.
“Simply put, it is highly questionable whether this purportedly independent special committee will conduct the thorough and robust investigation called for in light of the deeply concerning circumstances.”
Following the hearing, First Brands secured a commitment from an ad-hoc group of lenders to provide US$1.1bn in debtor-in-possession financing – temporary funding that allows a company seeking bankruptcy protection to pay operating expenses – of which US$500mn has been approved by the court.
During the hearing, a lawyer representing the lenders said they were “funding US$1.1bn into… effectively a black box”.
