First Brands Group, LLC filed a motion in bankruptcy court seeking approval for procedures to unravel a web of fraudulent factoring arrangements that left billions of dollars in invoices fabricated, inflated, or sold multiple times to different lenders, creating widespread confusion among the debtor's customers and freezing approximately $250 million in cash.
The debtors filed the motion on December 1, 2025, in the United States Bankruptcy Court for the Southern District of Texas, requesting the establishment of detailed reconciliation procedures designed to determine which of the company's receivables were legitimately factored and which remain property of the bankruptcy estate. The case involves approximately $3.0 billion in invoices sold to third-party factors at face value, with the debtor's investigation revealing that roughly $2.5 billion of those invoices cannot be matched to actual inventory sales to customers.
Scope of the Factoring Irregularities
Prior to filing for bankruptcy protection in late September 2025, First Brands engaged in third-party factoring arrangements where it sold customer receivables to unaffiliated lenders at a discount to improve liquidity. However, a forensic investigation by restructuring advisor Alvarez & Marsal uncovered widespread irregularities in these transactions.
The investigation revealed three primary types of problems. First, the company provided fabricated invoices to factors where the invoice information did not match system-generated records. Second, invoice amounts were significantly inflated beyond the values recorded in the company's accounting systems. Third, the same invoices were sold to multiple different factors, creating competing claims to the same receivables.
The current loan value liability of the factored invoices totals approximately $2.3 billion. However, investigators have been unable to match approximately $2.5 billion worth of these invoices to actual inventory sales. First Brands discontinued all third-party factoring activities on or around September 12, 2025, shortly after learning of the irregularities and approximately two weeks before the initial bankruptcy petitions were filed.
Customer Confusion and Trapped Cash
The factoring problems created significant operational challenges for the debtors. Many third-party factors sent pre-bankruptcy notices to First Brands customers directing them to remit payments to factor-controlled accounts rather than to the company. These assignment notices created widespread confusion among customers, who were unable to verify which invoices had actually been factored.
The company states in its motion that many customers froze all payments to First Brands, fearing double-payment liability if they paid the wrong party. The debtors estimate approximately $150 million is currently being withheld by customers on accounts receivable that show no evidence of ever being factored. Combined with approximately $105.9 million in receipts collected since the bankruptcy filing that have been segregated in a special account, the total amount of frozen cash approaches $250 million.
According to the motion, this locked-up cash constitutes collateral under the company's debtor-in-possession financing arrangement and was budgeted to be available for operations. The debtors state that without access to these funds, they face severe liquidity constraints that threaten their ability to continue operations and complete their restructuring.
Proposed Reconciliation Process
The proposed procedures would establish a comprehensive framework for determining the ownership of collected and trapped receipts. Alvarez & Marsal would conduct a multi-step reconciliation process for all funds, first matching receipts to specific invoice numbers, then comparing those invoices to both third-party factor purchase records and the debtors' system-generated invoices.
Under the proposed procedures, funds would be classified as factored receivables only if they match both the factor purchase records and the debtor's system records. Conversely, funds that do not match both sets of records would be deemed non-factored receivables and property of the bankruptcy estate. The process would also identify whether factored receivables were purchased by a single factor or by multiple factors with competing claims.
Through November 21, 2025, investigators reconciled $105.9 million in collected receipts. Of this amount, only $4.4 million matched invoices purchased by third-party factors, while $101.6 million were determined to be non-factored receivables. An additional $10.2 million remains subject to ongoing reconciliation.
Proposed Reporting and Objection Rights
The proposed procedures would require First Brands to serve bi-weekly reconciliation reports on key stakeholders, including the U.S. Trustee, the official creditors' committee, DIP lenders, third-party factors, and affected customers. These reports would detail invoice numbers, supplier names, customer names, and invoice amounts for non-factored receivables, single-claim factored receivables, and multiple-claim factored receivables.
Three days before serving each report on stakeholders, the debtors would provide a draft to advisors for the creditors' committee and the ad hoc group of DIP lenders for confidential review and consultation.
Stakeholders would have a ten-day notice period to object to any receivable classifications in the reconciliation reports. Objections would need to be in writing, state specific legal and factual grounds, and provide supporting documentation. If an objection is filed, the debtors and objecting party would meet and confer within seven days. Unresolved objections after the meet-and-confer period could be scheduled for court hearing on at least ten days' notice.
Funds that are not subject to timely objections would become undisputed funds that the debtors could release from the segregated account without further court approval, either to the appropriate third-party factor or into the debtors' operating accounts as applicable.
Proposed Customer Protections
The proposed order would provide protection for customers caught between the debtors and competing factor claims. The debtors seek authorization for customers to remit all pre-bankruptcy amounts to First Brands without risk of liability from third-party factors, with factors prohibited from collecting or seeking to collect from customers on account of these payments.
The proposed order would require any factor that sent assignment notices to customers to send withdrawal notices within seven days, with a copy of the court order attached. Customers would be instructed to remit all pre-bankruptcy receivables to First Brands, which would then transfer the funds to the segregated factored receivables account for reconciliation.
Bankruptcy Case Background
Global Assets LLC and twelve affiliated debtors initially filed chapter 11 petitions on September 24, 2025. First Brands Group, LLC and the remaining affiliated entities filed voluntary cases on September 28, 2025. The cases are being jointly administered under case number 25-90399 (CML) before Judge Christopher Lopez in the Houston Division of the U.S. Bankruptcy Court for the Southern District of Texas.
The U.S. Trustee appointed an official committee of unsecured creditors on October 9, 2025. The committee is represented by Brown Rudnick LLP as legal counsel and M3 Advisory Partners as financial advisor. An ad hoc group of DIP lenders is represented by Gibson, Dunn & Crutcher as legal counsel, with Evercore Group and Huron Consulting Services providing advisory services.
The debtors are represented by Weil, Gotshal & Manges LLP, with Gabriel A. Morgan and Clifford W. Carlson serving as local counsel in Houston, and Matthew S. Barr, Sunny Singh, Andriana Georgallas, Kevin Bostel, and Jason H. George serving as counsel in New York. The motion was supported by a declaration from Daniel Jerneycic of Alvarez & Marsal, which is serving as the debtors' restructuring advisor and conducting the forensic investigation of the factoring arrangements.
The motion states that the debtors shared the proposed procedures with the creditors' committee and the third-party factors to solicit input and provide an opportunity for any concerns to be addressed.
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