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The founder of failed car parts maker First Brands will regain access to his personal bank accounts after a judge rejected the company’s attempt to extend a freeze on his assets.
Judge Christopher Lopez of US bankruptcy court in Houston said the company had not shown sufficient evidence to meet the high bar required for an injunction blocking Patrick James from his bank accounts. He added it was an “extraordinary remedy” that should only be used in “rare circumstances”.
“The public interest is best served by not granting the injunction at this time,” he said. “I have to have a substantial threat of irreparable injury. I can’t just have speculation.”
Michael Carlinsky, global co-managing partner of law firm Quinn Emanuel, which represents James, told the Financial Times he believed First Brands “grossly over-reached” in seeking the asset freeze and said he was looking forward to “further vindication” of his client.
“We’re proud that we were able to beat back [First Brands’] efforts to freeze Mr James’ assets,” Carlinsky said.
The company, now under new management, sued James earlier this month, accusing him of siphoning vast sums from it over several years to fund a “lavish lifestyle”.
First Brands collapsed into bankruptcy in September after it was unable to refinance billions of dollars of debt. It filed for court protection with $12mn in its bank accounts despite having nearly $12bn of liabilities, raising questions about how the company had failed and why it was left with so little cash.
The court granted a temporary restraining order against James last week, which froze his assets while the company continued to investigate allegations that hundreds of millions of dollars had been moved into his personal accounts.
At a hearing on Monday, lawyers for First Brands accused James of “misappropriating” huge sums, adding he spent company funds on luxuries such as a private chef and personal trainer. The group also accused him of fraudulently raising loans for the company through “doctored” invoices.
Charles Moore, the company’s new chief executive from consultancy firm Alvarez & Marsal, during the hearing on Monday cited “dummy invoices” in transfers of funds to the founder’s personal bank accounts.
But lawyers for James successfully argued the asset freeze requests were “grossly overbroad”, and introduced evidence showing funds also moved from his personal accounts into company coffers.
Lopez also concluded there was no evidence showing James himself manipulated invoices.
The judge conceded questions loom over First Brands, especially how roughly $2bn disappeared from the company’s bank accounts before it filed for bankruptcy.
“There are red flags everywhere in the cash management system,” Lopez said during the hearing on Wednesday. “There were questionable transfers, and people in the company knew about it.”
Lopez added James no longer runs the company or has access to its current assets, and does not pose a threat to its business. “Everyone is going to have their day in court,” the judge said. “And have the opportunity to present and prosecute or defend themselves.”
First Brands did not respond to a request for comment.