First Brands Liquidation Plan: What It Means for Creditors 

The First Brands liquidation plan advanced on June 12, 2026, when a federal bankruptcy judge approved the auto parts maker’s request to solicit creditor votes on its wind-down proposal. A final confirmation hearing is scheduled for July. For the thousands of trade suppliers left holding unpaid invoices after the company’s September 2025 Chapter 11 filing, the plan offers a litigation trust, but not a quick payment.

What is the First Brands liquidation plan? 

First Brands Group filed for Chapter 11 in September 2025, disclosing more than $11 billion in debt and securing a $1.1 billion debtor-in-possession loan to keep operations running. Reorganization efforts failed. The plan before creditors calls for an orderly wind-down rather than Chapter 7 conversion, a distinction that keeps management in control rather than handing the case to a court-appointed trustee. 

U.S. Bankruptcy Judge Christopher Lopez approved the solicitation process on June 12, rejecting requests from the U.S. Trustee and several creditors who wanted Chapter 7 conversion. A final plan confirmation hearing is set for July. 

Who funds the litigation trust? 

The plan creates a $75 million litigation trust to pursue insider fraud claims. Twenty-five million dollars comes from First Brands’ existing cash. The other $50 million comes from the same lenders that provided the DIP financing, which means those lenders control both the funding and the recovery strategy. 

The trust’s primary targets are founder Patrick James and his brother Edward. Federal prosecutors indicted both in January 2026 on charges including bank fraud, wire fraud, money laundering conspiracy and running a continuing financial crimes enterprise. The nine-count indictment alleges the brothers inflated invoices, pledged the same collateral across multiple loans simultaneously and falsified financial statements from 2018 through 2025. Patrick James has pleaded not guilty. 

What do unsecured trade creditors actually recover? 

Practically nothing, and not quickly. Secured lenders with $11 billion in claims sit at the front of the repayment line. Unsecured creditors, which includes most trade suppliers, compete for whatever the litigation trust generates from fraud lawsuits that could take years to resolve. 

Trade Finance Global reported that U.S. accounting standards allowed the company to hide off-balance sheet financing from suppliers and counterparties who relied on its financial disclosures. The company had also absorbed roughly $220 million in tariff-related costs after new U.S. import duties took effect in April 2025, compounding pressure from the alleged fraud. There was no public warning before the collapse. 

Suppliers who held trade credit insurance before the September 2025 filing could submit claims immediately after the Chapter 11 petition and recover up to 90% of insured invoice value while the courts worked through the process. Suppliers without coverage joined the unsecured creditor queue and are still waiting. 

Frequently asked questions: First Brands liquidation 

Can unsecured creditors still file claims? Yes, but any distribution depends on the litigation trust’s success pursuing former executives and other insiders, and those cases have no fixed timeline. 

Did trade credit insurers pay out on First Brands? According to reporting by Insurance Business Canada, insurers began cutting limits on First Brands exposure before the public filing. Policyholders received claim payments after Chapter 11. Uninsured suppliers did not. 

Is the First Brands case a one-off, or a warning? 

Nearly 800 U.S. companies filed for bankruptcy in 2025, more than in any year since 2010. First Brands is unusual in scale. The pattern, a major buyer collapsing faster than its credit rating reflects while trade suppliers end up in the unsecured creditor pool, is not unusual at all.

Conclusion

Trade credit insurance protects receivables through ongoing buyer monitoring, automatic limit reductions as risk rises, and direct claim payment after a default or bankruptcy filing. Political risk insurance provides comparable protection for cross-border receivables exposed to sovereign nonpayment risk. 

The window to insure a receivable closes when a buyer files. For First Brands, that window closed nine months ago. 

Disclaimer:

This blog post is meant to be informative and provide helpful tips and insights into credit insurance policies. It is not meant to supersede any policy requirements. Please consult your credit insurance policy for all requirements including claim filing deadlines and required documentation. 

Since 2004, Securitas Global Risk Solutions, LLC has helped clients develop trade credit and political risk transfer solutions. As an independent brokerage, Securitas is focused on developing comprehensive solutions that meet client needs, ensuring a complete understanding of policy wording and delivering excellent responsive service.