MoFo Advises Onset Financial in In re First Brands Group, LLC

MoFo successfully advised Onset Financial (as co-counsel) in opposing a relatively novel liquidation plan in In re First Brands Group, LLC.

Onset Financial was the one of the largest financing counterparties to the Debtors, which filed for bankruptcy protection in the U.S. Bankruptcy Court for the Southern District of Texas in September 2025. Shortly after the case was filed, it was revealed that the Debtors and certain key insiders had allegedly engaged in a multi-billion-dollar fraud scheme involving, among other misconduct, fabrication and inflation of invoices, double pledging of collateral, and falsification of financial statements. The Debtors’ owner and former CEO Patrick James and his brother and former executive vice president Edward James have been indicted by the U.S. Department of Justice, while other senior executives have pled guilty to participating in the fraud scheme and are now cooperating with the prosecution.

After liquidating most of their assets and selling or closing substantially all of their business units, the Debtors were left with nearly $300 million in unpaid administrative expense and priority claims. The Debtors proposed an unusual plan of liquidation that, among other things, would immediately create a liquidation trust to pursue estate claims and causes of action but defer payment of administrative and priority claims pending the receipt of proceeds by the trust at a later date. The trust would need to generate an estimated $1.9 billion in proceeds to pay such claims in full based on the waterfall set forth in the plan.

On August 24, 2026, the bankruptcy court issued a lengthy bench ruling denying confirmation of the plan and ordering conversion of the cases to chapter 7. The court’s decision adjudicated a number of cutting-edge bankruptcy issues, including that DIP financing lenders cannot credit bid on estate claims on which they do not have a lien or vote their “roll-up” claims in favor of a plan.  The court also found the plan’s proposal to defer payment of administrative and priority claims not inherently improper, but lacked sufficient evidence regarding the timing and amount of, or even the likelihood of success in securing, potential litigation claim proceeds. MoFo conducted vigorous cross-examination of a key expert witness, which led to crucial findings in the court’s decision denying approval of the plan.

A cross-practice MoFo team was led by Business Restructuring + Insolvency Litigation partner Bryan Kotliar with associates Ilayna Guevrekian and Cameron Lakin, along with Litigation partners Brian Michael, Tony Fiotto, Michael Birnbaum, and Julia Koch.