A secured lender to bankrupt auto parts-maker First Brands Group has successfully argued for a temporary injunction to prevent the distribution of proceeds from inventory sales by off-balance-sheet lender Aequum Capital. The secured lender, Bank of America, claims to have senior liens on the inventory that served as collateral for a First Brands subsidiary, Cardone Industries Inc. This injunction means the sale proceeds will be held until the court determines which lender has superior claim to the funds.
The dispute centers on the validity and seniority of liens held by prepetition lenders, represented by Bank of America, Wilmington Savings Fund Society, and GLAS USA LLC, versus Aequum Capital. The prepetition lenders are seeking a declaratory judgment that their liens are valid and senior to Aequum's, and crucial injunctive relief to prevent Aequum from distributing what they assert could be millions of dollars to its own creditors and investors. They fear that without the injunction, Aequum could become insolvent or judgment-proof, making recovery difficult if the court rules in their favor.
Aequum, which obtained relief to liquidate Cardone Industries inventory as early as January 2026, has moved to dismiss the lien priority adversary complaint. Aequum contends that the inventory sales to Broad Street Financial were "permitted dispositions" that automatically released the senior liens under the governing credit agreements. They argue these transfers allowed Broad Street to acquire the inventory "free and clear" before pledging it to Aequum. However, First Brands Group, in an amended answer, admitted that it did not have an interest in the goods it purported to sell and that the senior lenders never authorized the release of their liens.
The ongoing legal battle highlights the complex financial unraveling of First Brands Group, which filed for bankruptcy in September due to alleged fraudulent double-pledging of assets. The company's financial state has worsened, and its lenders potentially face significant losses, even on the additional $1.1 billion provided during the bankruptcy. The resolution of this lien priority dispute is critical for determining how limited assets will be distributed among creditors amidst multiple lawsuits and investigations, including a planned litigation trust to pursue claims against former top officers and lenders.
