First Brands Prepetition Lenders Seek Preliminary Injunction to Freeze Aequum Sale Proceeds; Aequum Moves to Dismiss Lien Priority Suit

Relevant Documents:
Preliminary Injunction Motion
Discovery Motion
Aequum Motion to Dismiss
Debtors’ Amended Answer

First Brands ABL agent Bank of America, term loan agent Wilmington Savings Fund Society and side-car loan agent GLAS USA LLC filed emergency motions for a preliminary injunction and expedited discovery on May 5 in their lien priority suit against off-balance-sheet lender Aequum Capital.

In the suit, the prepetition lenders are seeking a court order freezing and escrowing proceeds from Aequum’s ongoing liquidation of Cardone Industries inventory and a declaratory judgment that the plaintiffs’ liens are valid and senior to any liens of Aequum. The lenders now insist they need “imminent” injunctive relief to prevent Aequum from distributing proceeds to its own creditors and investors.

The plaintiffs do not seek to halt Aequum’s ongoing liquidation of Cardone Industries inventory, but say the proceeds should be escrowed pending the final adjudication of the parties’ lien priority. The prepetition lenders assert that Aequum intends to distribute the proceeds “immediately upon receipt,” and this creates a risk that Aequum will be “insolvent, or at a minimum, effectively judgment proof” if the court finds the prepetition lenders’ liens are superior to those under Aequum financing facility.

Aequum, after seeking and obtaining relief from the automatic stay in January 2026, began exercising its foreclosure remedies against the Cardone inventory and has since contracted with third parties to help liquidate it. The stay relief order reserved the prepetition lenders’ rights to assert liens on and ownership of the inventory.

The conflict centers on approximately $43.8 million in undisclosed financing provided by Aequum to Broad Street Financial, a special purpose vehicle allegedly used by First Brands’ former executives Patrick and Edward James to facilitate a multibillion-dollar fraud. Although the prepetition lenders argue that the inventory transfers to Broad Street were a “fiction” because the supposed seller, debtor First Brands Group LLC, or FBG, never owned the goods, Aequum contends it is a “good faith” lender entitled to the collateral.

The prepetition lenders contend the FBG debtor lacked title to transfer the assets, Broad Street never acquired an interest and Aequum’s asserted security interests never attached. Accordingly, the lenders say the inventory collateral owned by Cardone Industries remained subject to the prepetition lenders’ senior and prior perfected security interests.

The lenders point to a post-petition investigation by co-CRO Daniel Jerneycic, which concluded that FBG and Broad Street “did not comply with the terms” of their transaction agreements. The investigation found that approximately $42.9 million from Aequum was routed through a non-debtor entity, Bowery Finance II, which James allegedly used as a “slush fund” to move cash to unrelated First Brands subsidiaries rather than the supposed seller. Further, the prepetition lenders say FBG’s records indicate it did not own any inventory during the relevant periods.

The First Brands debtors filed an amended answer to the complaint on May 5, admitting that the FBG debtor “did not have an interest in the goods it purported to sell,” despite representing that it had title to the inventory, and that the senior lenders never authorized the release of their liens.

Aequum has moved to dismiss the adversary complaint, asserting that the inventory sales to Broad Street Financial were “permitted dispositions” that automatically released the senior liens under the governing credit agreements. Aequum asserts that the inventory transfers to Broad Street were permitted sales of assets under section 7.05 of the ABL credit agreement that allowed Broad Street to acquire the inventory “free and clear” before pledging it to Aequum.

Aequum further contends that the prepetition lenders’ ownership failure theory does not undermine its security interests. Aequum argues that, even if Cardone was the technical owner of the inventory, the First Brands enterprise operated as a commingled unit where the FBG debtor frequently acted on behalf of its subsidiaries. Aequum maintains that it holds a perfected, first-priority interest in the Broad Street inventory that cannot be disturbed by the prepetition lenders’ failure to monitor their borrowers’ corporate formalities.

The prepetition lenders have requested a truncated discovery schedule in connection with the preliminary injunction to conclude by May 20. The prepetition lenders seek evidence on Aequum’s due diligence before lending, asserting that Aequum apparently accepted false representations from the James brothers without independently confirming FBG’s ownership of the collateral.

The prepetition lenders request consideration of the motion for expedited discovery no later than May 8.