The failed First Brands liquidating plan and the conversion to Chapter 7

analysisOn May 13, 2026 the U.S. Trustee moved to convert the cases to Chapter 7 or to dismiss them, arguing that a Chapter 7 trustee could liquidate the assets and pursue the litigation claims at a fraction of the existing costs. According to the motion as reported, the company had already paid at least $245 million of advisory fees to bankruptcy advisers for itself and its creditors through March 2026, including about $77.8 million to its main law firm, it had $233 million of unpaid administrative claims, and the proceedings improperly favoured a limited group of professionals and lenders. These were the U.S. Trustee's arguments, not findings of the court. On June 12, 2026 the court denied the motion to convert or dismiss and conditionally approved the disclosure statement for the debtors' revised plan. ^{1 2}

analysisAfter Judge Lopez refused on May 26, 2026 to approve the disclosure statement for an earlier single-debtor plan, the debtors filed on June 5, 2026 an amended joint liquidating plan for the subsidiaries of First Brands Group Holdings, LLC and of Viceroy Private Capital, LLC, the holding company of the Carnaby special-purpose-vehicle (SPV) silo; the SPV debtors were not plan debtors. A litigation trust, with Gerard Uzzi as litigation trustee, was to be funded with at least $75 million, made up of $50 million of committed funding backstopped by certain debtor-in-possession (DIP) lenders and $25 million of cash. The debtors' equity interests were to be cancelled when their cases closed, and the remaining rights of the holders of interests in FBG Holdings and Viceroy were to be non-transferable. ¹

analysisThe plan estimated allowed claims against the First Brands debtors at $1.335 billion for new-money DIP claims; $3.3 billion for roll-up claims, deemed allowed at that amount although the debtors put total roll-up claims at about $3.577 billion; $1.991 billion for first-lien claims; $600 million for second-lien claims; $367 million for asset-based (ABL) claims; and $5.641 billion for general unsecured claims. On confirmation the ABL agent would be deemed to have foreclosed on the ABL collateral and transferred it to an ABL collateral trust. The plan also added the First Brands debtors, the special committee members William Transier and Benjamin Duster, and Neal Goldman and Benjamin Duster in their capacities as independent managers to its release and exculpation provisions. These were estimates and proposed terms of a plan that was never confirmed. ¹

analysisIn a June 2026 declaration supporting the plan, Charles Moore disclosed that the debtors had generated approximately $221 million from the Walbro, Toledo Molding & Die and Horizon North America sales and other asset sales and had used it to pay down secured claims. ¹

analysisFurther recoveries were to come from litigation. In July 2026 court filings the debtors argued that more than $25 billion was potentially available through litigation against third-party financing companies, including Katsumi, Jefferies's subsidiary Leucadia Asset Management and the leasing company Onset Financial, and against founder Patrick James; the figure was the debtors' estimate of a potential claim universe based on gross transfers, not a valuation or a court finding. Katsumi, Leucadia Asset Management, Onset and the U.S. Trustee objected to the plan. By June 2026 the debtors' suits against James and against Onset, together seeking more than $2.7 billion in damages, were stayed pending resolution of the criminal charges against James, with Judge Lopez directing the parties to report on the criminal proceedings by July 13, 2026 and James's criminal trial scheduled for February 9, 2027; the claims in those suits have not been adjudicated. James has denied the fraud allegations, and after the August 2026 plan ruling an Onset spokesperson said the court's rejection of the plan was another sign that the debtors' allegations against Onset lacked merit. In denying confirmation on August 24, 2026 the court did not assess the merits of these claims. ^{2 3 1}

analysisIn a bench ruling on August 24, 2026 Judge Christopher Lopez refused to confirm the debtors' liquidating plan, and later entered a one-page order denying confirmation (Docket No. 3710) that incorporated the ruling. The plan depended on litigation over roughly $25 billion of transfers and needed recoveries of about $1.9 billion to $2.0 billion before administrative claims could be paid in full, possibly pushing the effective date into late 2028. The judge found that recovery case too uncertain and noted that confirmation would immediately transfer assets to trusts, terminate management and impose releases that could not later be unwound. The court did not decide the merits of the estate's claims or find bad faith, and it overruled several disclosure and process objections. ^{1 2}

analysisThe ruling also rejected the proposed sale of the estate's litigation claims to the DIP lenders by credit bid, because the lenders' liens attached only to proceeds of certain avoidance actions and not to the claims themselves, and because the claims had not been adequately marketed. It held that DIP roll-up claims, being administrative claims, could not serve as the accepting impaired class for Viceroy Private Capital and FBG Holdings, and it refused a preference settlement that let an electing creditor later be removed for alleged adverse conduct. ^{2 1}

analysisJudge Lopez also noted that the declaration of interim chief executive Charles Moore had accepted the $25 billion figure without adjusting for potential defences, gave no real analysis of whether claims could be resolved before a 2028 deadline and took no position on possible federal forfeiture of Patrick James's assets in the criminal case. The judge further found that the plan would transfer claims of the SPVs, which are not part of the First Brands estate and are subject to claims of financiers such as Evolution Credit Partners, saying the debtors "can't sell what they don't own". ³

analysisOn September 1, 2026 Judge Christopher M. Lopez entered an order converting the remaining First Brands Chapter 11 cases to Chapter 7 (Docket No. 3748), a week after the August 24 bench ruling. By then substantially all of the operating businesses had been sold or wound down, most of the roughly $1.1 billion of new-money DIP financing had been spent and at least $222 million of obligations incurred during the bankruptcy remained unpaid; counsel for Onset put the unpaid administrative and priority claims at nearly $300 million. As reported from the ruling, First Brands no longer operated any business and had terminated most of its workforce. One trade report dated the conversion to August 24, 2026, the day of the bench ruling; the conversion order itself is dated September 1, 2026. ^{1 2 3 4}

analysisThe proposed conversion order filed on August 27, 2026 (Docket No. 3722) would convert 108 First Brands debtors to Chapter 7 on entry, noting that Patterson Inventory, Patterson Inventory Holdings, Starlight Inventory I and Starlight Inventory Holdings I had already been converted in April 2026. It preserved the DIP liens and superpriority claims, and provided that the independent directors Neal Goldman, William L. Transier and Benjamin Duster and the officers Charles Moore, Daniel Jerneycic, Gaurav Malhotra and Paul Kosturos would be deemed to have resigned on conversion. These are the terms of the proposed order as filed; the text of the final order of September 1, 2026 is not in the retained record. ⁵

analysisSeparately, on April 8, 2026 the debtors had sought emergency approval of a settlement allowing the cases of the Evolution SPV debtors to be converted to Chapter 7. On July 8, 2026 Evolution moved to compel the debtors to turn over $21.5 million of accounts receivable collected after the petition, and on July 9, 2026 the Chapter 7 trustee of the SPV debtors joined the motion. ⁵