First Brands: When Verification Failure Reaches Chapter 7

Judge Lopez denied confirmation of First Brands’ joint Chapter 11 plan today. The order runs to a single paragraph: denied for the reasons stated on the record. Reporting from the hearing indicates the court also converted the case to Chapter 7, rejecting the litigation-dependent plan as infeasible.

The reasoning matters.

Per Reuters, the plan deferred at least $222 million of obligations incurred during the bankruptcy, and litigation recoveries would have needed to reach $1.9 billion before administrative claims could be paid in full.

“Unfortunately, time was not on the debtor’s side,” Lopez said. “The sales process did not render the types of sales prices I’m sure everybody wanted.”

Consider the arithmetic.

First Brands entered Chapter 11 last September with more than $9 billion of liabilities. It obtained approximately $1.1 billion of new-money DIP financing. Three major business-line sales identified by Reuters generated about $194 million. Eleven months later, the proposed plan depended on $1.9 billion of litigation recoveries before administrative claims could be paid in full.

Chapter 11 can accommodate liquidation, and often does. But a liquidating plan still has to satisfy the Code’s priority and feasibility requirements. Here, litigation recoveries could not bridge that gap with sufficient certainty.

And First Brands was not merely a capital-structure problem.

You can restructure debt. It is much harder to restructure around assets alleged not to have existed, invoices alleged to have been inflated, or collateral alleged to have been financed more than once.

In this year’s World Factoring Yearbook, looking at Greensill, First Brands and HPS/Carriox together, I argued that one recurring failure across all three was accepting borrower-provided representations without sufficient independent verification.

Today’s ruling shows what that failure can cost at the far end of the pipeline: not merely a haircut on prepetition credit, but an estate unable to demonstrate how its administrative claims will be paid in full.

It is also the point I made after Greensill in the 2022 World Supply Chain Finance Report: the existence of an asset pool, financing structure or insurance policy does not establish that the underlying assets are what the structure assumes them to be.

Nineteen years ago, in GARP Risk Review, I was already writing about the operational risk embedded in trade receivables.

Non-existent or duplicate invoices are not a new failure mode. Neither is the need to validate the asset rather than simply underwrite the seller.

By the time a case reaches a courtroom, the verification question has already been answered – expensively, and by someone else.

In re First Brands Group, LLC, No. 25-90399 (CML), Bankr. S.D. Tex. – Order Denying Plan Confirmation, Doc. 3710 (Aug.

Igor Zaks, CFA, President, Tenzor Ltd. tenzor.ca | Toronto

Zaks’ latest publication, Global Trade Receivables Finance Penetration Study: 2006 vs. 2024, is now available via BCR. The study examines how receivables finance penetration has evolved globally across the past two decades and can be accessed here:
Global Trade Receivables Finance Penetration Study: 2006 vs. 2024

Order the World Factoring Yearbook 2026 here.