While potential bidders want Takata’s U.S. unit to file for bankruptcy so as to cover them from potential future lawsuits, GM’s legal precedent could however spoil their game plan of acquiring Takata’s assets without getting tainted by its liabilities. However, this could be set apart from the GM’s case since given Takata’s notoriety vis-à-vis its airbags, potential claims from plaintiffs can be easily identified. Secondly, GM’s ruling is only binding in 1 out of the 11 bankruptcy courts in the U.S. However, given the complexity of the case, “Any bankruptcy judge will be really nervous about this one,” – John Pottow, professor of Law, University of Michigan. Pottow specializes in bankruptcy.
With the U.S. unit of Takata preparing to file for a possible bankruptcy, according to sources familiar with the matter at hand, potential bidders are poring over recent U.S. court rulings which could expose them or increase their potential liability due to the company’s defective air bags.
Faced with malfunctioning inflators in its air bags, Takata is staring at billions of dollars in costs from what is stated to be the world’s largest automotive recall, stemming from defective inflators installed in its air bags.
Although Takata has stated it is looking for a financial backers, but potentially interested bidders first want its U.S. operations to file for bankruptcy, as a means to cover their back.
Generally speaking, U.S. bankruptcy laws allows bidders to buy assets which are untainted of lawsuits and liabilities. The money that is so generated is used by the seller to repay its creditors.
However, for potential bidders, the precedent set by the 2nd U.S. Circuit Court of Appeals in July this year when it pronounced in the case of General Motors that the “new GM” can be sued over faulty ignition switches made by the “old GM”, is acting as a deterrent.
“What that says to me: buyer beware,” said Henry Jaffe, a bankruptcy lawyer at Pepper Hamilton, Wilmington, Delaware who represents debtors and creditors.
As per Jaffe, that ruling could undercut what bidders are willing to pay for Takata.
Takata has used a chemical compound which can explode with excessive force when exposed for a prolonged duration to hot conditions. It has been linked to 16 deaths, mostly in the U.S. This has led to 100 million Takata air bag inflators being classified as defective and has led to this massive recall.
Although Takata has received 5 bids, they however require it to file for bankruptcy protection in the U.S., GM style.
The company’s creditors, who have spent millions of dollars in recalls, are looking for reimbursement of their costs. They have also demanded that any buyer of Takata’s assets share a portion of their incurred costs.
For those who are wanting to buy Takata’s assets, they will naturally want to make use of the available bankruptcy tools to protect themselves from potential lawsuits of faulty car owners.
According to lawyers, given the uncertainty surrounding the case, potential bidders could use a holdback mechanism, available in bankruptcy law, which could see a portion of the sale money be kept in escrow and be used to settle any unanticipated legal claims against them. In time, any leftover in this fund, can be released to the Takata bankruptcy estate.
However, lawyers opine, that Takata and its creditors would most likely resist such a holdback.
As per Takata’s Chief Financial Officer, in Japan, Yoichiro Nomura told reporters that the company is hoping to reach an agreement with its creditors on a restructuring plan, which it plans on accomplishing by the end of this year.
Takata wants to avoid filing for bankruptcy.
In the past, despite posting losses for three of the four financial years, Takata has remained the auto industry’s biggest supplier of air bag systems. It is also the world’s No. 1 manufacturer of steering wheels, child safety seats, seatbelt manufacturer and electronic control units.
Categories: Entrepreneurship, HR & Organization, Regulations & Legal, Strategy
manageria.biz 
Leave a comment