First Brands creditor claims as much as $2.3bn has ‘simply vanished’

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One of First Brands’ biggest creditors has claimed as much as $2.3 billion “simply disappeared” as part of the bankrupt car supplier’s failure, calling for an independent examiner to investigate its downfall.

The claim from Raystone, the technology group that helped arrange much of First Brands’ off-balance-sheet financing with investors, highlights the scale of losses lenders fear they could suffer as part of the collapse.

The rapid collapse of First Brands has rippled through global credit markets, the source of trillions of dollars of debt that companies rely on to finance their operations. Investors are now closely watching the bankruptcy proceedings.

With up to $2.3 billion in “unaccounted” assets, appointing an external auditor to lead the investigation was “critical to maximizing recovery for creditors,” Raiston said.

“Debtors should not be allowed to appoint the very parties who will investigate their potential misconduct,” wrote Richard Jacobsen, a Rayston counsel.

First Brands has appointed independent directors to lead an investigation into off-balance sheet financing arrangements as part of its bankruptcy. Its current management team, including CEO and founder Patrick James, remains in place.

First Brands also hired law firm Weil, Gotshal & Manges and investment bank Lazard to shepherd it through the bankruptcy process.

The company’s advisers told the court overseeing its bankruptcy that they could not account for $1.9 billion in assets set aside to serve as security for First Brands’ creditors.

“The debtors have already at least admitted to accounting violations in this case, but the debtors’ investigation into their potential wrongdoing is woefully inadequate given the amount of potential misconduct involved,” Jacobsen said in his motion for Raiston.

First Brands declined to comment.

Erica Weisgerber, a lawyer for First Brands’ owners and senior executives, told the court this month: “We will continue to hear allegations… about the company and its management. And on behalf of our clients, we want to be on the record to conclusively refute those allegations.”

Raiston indicated on Wednesday that it is owed at least $172 million. The group, partly owned by a fund managed by UBS O’Connor, was linked to investors with $631 million in First Brands bills, bankruptcy filings show.

Sunny Singh, a lawyer for First Brands, said there was “zero dollars” when asked at a hearing this month in which about $2 billion raised by First Brands was held through “factoring” — a type of off-balance sheet financing of invoices.

“She’s not here. We don’t have her,” he said. “There’s $12 million in the bank account today. That’s it. There’s nothing else.”

In most U.S. bankruptcy cases, the judge allows the company and its advisors to manage the case, believing that the debtor-driven process maximizes recovery for all stakeholders.

However, creditors are often concerned that in contentious cases with the specter of possible wrongdoing, debtors may not look strongly at their past conduct.

Bankruptcy court often becomes the venue for hearing allegations of misconduct in cases of major corporate blowups.

For example, the FTX bankruptcy case involved an examiner who investigated the actions of the cryptocurrency exchange before it collapsed into bankruptcy.