27 Automotive Suppliers File Chapter 11 Bankruptcies in 2009; End of Year Status Summary; Likelihood of Bankruptcy Preference Recovery

Pressures in the global automotive industry forced 27 FN1 automotive parts and component manufacturers and 2 automakers to seek Chapter 11 bankruptcy protection in 2009.  The number of filings is only the headline of the story.  While estimated trade creditor distributions on prepetition claims swung the spectrum of 100% to 0%, estimated recoveries of less than 2 percent predominate.  And more trade creditor pain looms in several bankruptcies, as bankruptcy preference action recoveries are either included in liquidation budgets, are necessary to avoid administrative insolvency or are likely to be sought by plan administrators and liquidation trustees.

This article provides a comprehensive list of the 27 automotive supplier Chapter 11 bankruptcies in 2009, together with status at the end of 2009, estimated trade creditor recoveries and the potential for avoidance actions.

Foamex International Bankruptcy – Another Automotive Supplier Files

See the Foamex International Docsheet™ Report for subsequent developments in the Foamex International bankruptcy proceedings.

Feb. 23, 2009 – Foamex International, Inc., together with 7 affiliates, filed for Chapter 11 protection in Delaware on February 18, 2009.  The affiliates are:  Foamex, L.P.; Foamex Latin America, Inc.; Foamex Asia, Inc.; FMXI, LLC; Foamex Carpet Cushion LLC; Foamex Mexico, Inc.; and Foamex Canada Inc..

We have made the following preliminary observations:

  1. There is a high risk of bankruptcy preference claims in this bankruptcy;
  2. This is yet another automotive supplier casualty, although the press has not noted it as such;
  3. A very high amount, in both dollars and percentage, is being sought for payment of prepetition amounts to “critical cendors”;
  4. A realistic but expansive definition of “critical vendors” is being used;
  5. Inclusion on the critical vendor list is not immunity from a bankruptcy preference claim.

We discuss each of these observations in more detail below.