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DURA Automotive Systems, LLC Chapter 11 Filing: Overview and Implications for Suppliers

October 17, 2019

The pneumatic system in the electronics assembly line. The industrial 4.0 in electronics industry factory.

On October 17, 2019, Auburn Hills, Michigan-based company DURA Automotive Systems, LLC and its affiliated companies filed for Chapter 11 bankruptcy protection in Tennessee, with the stated goal of completing an expedited auction-style sale process within the next four months. DURA says that its non-U.S. operations in Asia, Europe, South America, and Mexico are not included in the Chapter 11 cases, and that their operations will continue in the ordinary course.

Despite DURA assurances that “all customer, trade, and employee obligations” will be assumed in the anticipated bankruptcy sale, suppliers face significant risk post-petition both to the collection of their pre-petition claim as well as any continuing supply relationship.

Some suppliers will be hesitant to continue to supply products to DURA other than on a COD basis. Others may refuse to provide additional supply altogether without a deal in place for the payment of their pre-petition debt. To address this, DURA filed a “first day critical vendor motion” to allow it to pay some pre-petition debt to suppliers either on the basis that they are “critical vendors” or they have claims that accrued in the twenty-day period pre-petition that have higher priority status (called “503(b)(9) claims”). DURA has a multi-factored test for whether a supplier is a “critical vendor,” and will send letters to suppliers that they deem to be in that group. Out of necessity, DURA will also be immediately entering into discussions with some suppliers, including those who refuse to ship needed parts without a deal in place.

Varnum’s Restructuring lawyers are already assisting supplier clients in the DURA case, and have a long history of guiding automotive suppliers and other stakeholders through the complex work of automotive restructurings. Varnum also has a full-service automotive practice team, with particular experience in autonomous and connected vehicles, acquisitions, divestitures and joint venture transactions, NHTSA regulatory advice and compliance, product warranty, product liability and recall, import/export issues, tariffs and sanctions compliance, among other areas vital to the complex automotive industry. 

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