Takata—the airbag manufacturer at the center of the largest auto safety recall in history—filed for Chapter 11 bankruptcy on June 25th, setting in motion a series of business transactions and obligations that will undoubtedly fall on the shoulders of various unsecured creditors in the U.S., such as Fiat Chrysler.
The company has specifically decided to dismantle itself in stages because it owes too much money to too many people to continue operating. Much of the work—which mostly includes settling disputes by companies such as banks and carmakers, as well as accident victims who are owed money by the airbag giant—will now take place in courts throughout both the United States and Japan.
In filing for bankruptcy, Takata announced that it would sell its surviving operations to Key Safety Systems, a Chinese-owned company which rivals its American equivalent. Takata will continue to supply replacement airbag inflators as it winds down; a move designed to insulate Key Safety Systems from the recall process.
Although antitrust regulators in various markets must first approve the deal, it appears to provide Key Safety Systems with approximately one-quarter of the global airbag market, making it the second-largest supplier in the industry. In this move, Takata has essentially placed a legal firewall between itself and its creditors.
Uncertainties for Carmakers, Takata’s Biggest Unsecured Creditors
Takata has estimated that its liabilities far outweigh its assets at this point, ranging from $10 to $50 billion. Ultimately, no one yet knows just how much the recalls will cost and/or the victims could be awarded in lawsuits. However, it also owes billions of dollars to banks and automakers, which have been funding the costs to replace the company’s airbag inflators. Declaring bankruptcy effectively leaves some of these creditors at a loss.
Because there are so many uncertainties—not only with legal payouts Takata might have to pay, but also due to the potential for additional defects to surface after Takata is long gone—and because U.S. carmakers have indicated that they are committed to ensuring that all cars are fixed, these companies are now in a tricky position. For example, Honda has already informed its shareholders that it may be difficult to recover the majority of claims that the automaker holds against Takata. Other companies include Fiat Chrysler and Toyota (amongst others), as they are amongst Takata’s biggest unsecured creditors.
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If your company is dealing with the financial fallout of an associated company, we can help. Contact us for a free consultation—we serve Birmingham, Hoover, and Mobile-based businesses and creditors.