UMB Bank: First Brands Abandons $55M in Assets

UMB Bank Demands Independent Trustee as First Brands Advisers "Abandon" $55 Million in Assets

UMB Bank filed an emergency motion on November 23, requesting Judge Christopher Lopez to appoint an independent trustee to manage special purpose entities that secured financing backed by Ultinon inventory. The bank argues First Brands management has "an unavoidable conflict of interest" and is prioritizing certain lenders while attempting to divert portions of the $1.1 billion rescue financing to a cash-strapped German affiliate.

The motion claims First Brands advisers "are abandoning" more than $55 million worth of property belonging to the SPEs, escalating creditor disputes beyond the $700 million fraud allegations against founder Patrick James.

Judge Denies Asset Freeze Despite Fraud Evidence

Judge Lopez denied First Brands' November 13 bid to freeze Patrick James's personal assets, despite finding substantial likelihood of success on fraud claims. The company's November 3 lawsuit alleges James orchestrated "staggering dissipation of assets," deploying two strategies: causing First Brands to incur at least $2.3 billion in factoring liabilities based on non-existent or doctored invoices, and using SPVs to incur another $2.3 billion in debt through double-pledging collateral.

Multiple creditor groups are challenging the company's advisory structure, with lenders owed over $200 million arguing that the same legal team cannot represent both First Brands and the SPV debtors due to inevitable asset disputes.

DIP Financing and Investigation Budget Approved

First Brands secured court approval on November 6 for $600 million in additional rescue financing, bringing total debtor-in-possession financing to $1.1 billion. Judge Lopez ordered an independent examination of fraud allegations on November 19, allocating a $7 million budget for the investigation.

The bankruptcy filing on September 28 initially reported $1 billion to $10 billion in assets against $10 billion to $50 billion in liabilities. The collapse accelerated when investors demanded a quality of earnings report during a failed July refinancing attempt, causing first-lien term loans to plummet from near par to $0.36 in three weeks.

Background:
First Brands filed Chapter 11 on September 28, disclosing $2 billion in factoring arrangements and up to $4 billion in off-balance sheet liabilities. The company sued founder Patrick James on November 3, alleging multibillion-dollar fraud involving fake invoices and double-pledged collateral. Raistone, the firm that arranged much of First Brands' financing, is now seeking a rescue or sale after losing its largest client.

What This Means for Alternative Lenders

The conflict between UMB Bank and First Brands advisers over SPE property rights signals that creditor recoveries will be determined through extended litigation, not orderly restructuring. When advisers are accused of abandoning $55 million in collateral while simultaneously requesting $1.1 billion in DIP financing, recovery timelines extend from months to years.

The denial of the asset freeze motion creates immediate operational consequences. Patrick James retains control of personal assets despite allegations he siphoned $700 million, meaning fraudulent transfers cannot be clawed back until the independent examiner completes investigation. With a $7 million budget allocated for forensic accounting, the examination phase alone will consume six to nine months before any recovery actions begin.

For factoring and ABL lenders, the SPE disputes expose how inventory and receivables can be simultaneously pledged across multiple facilities through entity structuring. UMB's claim that certain collateral belongs exclusively to SPEs, while First Brands seeks to pool those assets for broader creditor benefit, previews the priority fights that will determine whether factors recover 10 percent or 50 percent of principal.

The attempted diversion of DIP proceeds to German affiliates demonstrates how international structures complicate domestic bankruptcy cases. Alternative lenders financing U.S. entities with foreign parent companies or subsidiaries must now treat cross-border fund flows as red flags requiring explicit covenant restrictions, not assumptions of good faith.

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