Lawyers for First Brands urged a federal bankruptcy judge in Houston to approve a restructuring plan to fund civil lawsuits against those allegedly responsible for a multiyear 'Ponzi scheme' at the defunct car parts maker. First Brands warned that failure to approve the plan could trigger a chaotic liquidation that would wipe out junior creditors in the company's multibillion-dollar capital stack.

The centrepiece of the plan is a so-called litigation trust to pursue potentially $1bn from First Brands executives who allegedly looted the company to fund a lavish lifestyle. Senior lenders, spending $75mn to fund the trust, agreed to share legal winnings with junior creditors before full repayment. Founder Patrick James faces criminal fraud charges stemming from alleged fabricated invoices and double pledging of loan collateral.

At the outset of the case, the bankruptcy estate raised $1.1bn in fresh debt to keep the Ohio-based company operating, but most capital was quickly burned and the estate raised just $200mn through asset sales. The bankruptcy loan is trading at 18 cents on the dollar. Judge Christopher Lopez said he would rule on the bankruptcy plan at a later date.