It’s only been a few days since Fisker filed for Chapter 11 bankruptcy, and the fight over its assets has already begun, with one lawyer claiming the startup was liquidating assets “outside of court oversight.”

At issue is the relationship between Fisker and its largest secured lender, Heights Capital Management, a subsidiary of financial services firm Susquehanna International Group. Heights loaned Fisker more than $500 million in 2023 (with an option to convert that debt into equity in the startup) while it was… The company’s financial distress was looming backstage.

This financing was not originally secured by any assets. That changed after Fisker breached a covenant when it failed to file its third-quarter financial statements on time in late 2023. In exchange for waiving that breach, Fisker agreed to give Heights first priority over all of its current and future assets, giving Heights significant leverage. Not only did Heights gain first place in determining what happens to assets in Chapter 11 proceedings, it also gave them the opportunity to tap a preferred restructuring officer to oversee the company’s slow descent into bankruptcy.

Alex Lees, a Milbank attorney who represents a group of unsecured creditors owed more than $600 million, said at the lawsuit’s first hearing on Friday that it had taken “a long time” to get to this point. He said Fisker’s late regulatory filing was a “simple technical oversight” that somehow led to the startup “essentially…[ing] “The whole work to the heights.”

“We think this was a terrible deal for us [Fisker] “And its creditors,” Lees said at the hearing. “The right thing to do is to file for bankruptcy months in advance.” Meanwhile, he said Fisker was “liquidating outside court supervision” for Heights, which he said amounted to “suspicious activity.” Fisker served the period leading up to the bankruptcy filing price reduction And selling vehicles.

Scott Grisman, a lawyer representing Heights’ investment arm, said Liz’s comments were “completely inappropriate and completely unsupported,” and derided them as “designed to be soundbites” meant to be picked up by the media.

“There could be a lot of frustrated creditors” in this case, “particularly Heights,” Griezmann said. He said Heights gave “a tremendous amount of credit” to Fisker. He later added that even if Fisker could sell its entire remaining inventory — about 4,300 Ocean SUVs — such a sale would “probably repay a small portion of Heights’ secured debt,” which currently stands at more than $180 million.

Lawyers He told the court Friday That they have an agreement in principle to sell the Ocean SUVs to an unnamed car rental company. But it is not immediately clear what other assets Fisker could sell in order to provide returns to other creditors. The company has claimed to have between $500 million and $1 billion in assets, but filings so far only feature detailed manufacturing equipment, including 180 assembly robots, a complete bottom line, a paint shop and other specialized tools.

Lees was not alone in his concern about how Fisker ended up declaring bankruptcy. “I don’t know why it took so long,” Linda Reichendfer, an attorney with the U.S. Guardian’s Office, said during the hearing. She also noted that she was still reviewing new filings late Thursday and in the hours leading up to the hearing.

She also expressed “grave concern” that the case could turn into a direct Chapter 7 liquidation after Ocean’s stock is sold, leaving other creditors fighting for leftovers.

Griezmann said at one point that he agreed that Fisker “may have taken too long” to file for bankruptcy protection, and that some of those disputes could have been “resolved more easily” if the case had begun sooner. He even said he agrees with Reichenderfer that “even with a fleet sale, Chapter 11 may not be sustainable.”

The two parties are scheduled to meet again in the next session on June 27.

Before dismissing everyone, Judge Thomas Horan thanked all parties involved for attending the hearing “very cleanly” despite the rush of filings this week. He particularly criticized the U.S. Trustee’s Office for working under “extremely difficult circumstances” to “control” the case with “a minimum of controversy, in the scheme of things.”

“I imagine there are a few people who want to catch up on some sleep now,” he said with a smile, after he finished the session.

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