AIG Financial ‘weaponizing the bankruptcy code,’ former employees say

By Sarah Lizee

Olympia, Wash., Dec. 15 – American International Group, Inc. subsidiary AIG Financial Products Corp.’s Chapter 11 filing is “an abuse of the bankruptcy process,” a group of former employees that are in litigation with the company said in court documents filed Thursday with the U.S. Bankruptcy Court for the District of Delaware.

“Through this Chapter 11 filing, AIG Inc. and AIG Financial Products Corp. are purporting to ‘reorganize’ an entity that does not operate as a going concern, has no business to rehabilitate, no direct employees, and no non-insider creditors other than the employee plaintiffs,” the group said.

The group noted that the parent company is financially healthy and has historically supported AIG Financial Products, even through the 2008 crisis.

“AIGFP has now suddenly filed for Chapter 11 bankruptcy based on a purported loan it owes its parent,” the group said, calling the loan “disguised equity,” as it has no interest rate or maturity date.

“The real impetus for AIGFP’s bankruptcy filing is to avoid repaying certain deferred compensation it owes to the employee plaintiffs, 46 former employees from whom AIGFP borrowed approximately $194 million during the 2008 financial crisis but has never repaid.”

The employees sued AIG Financial Products to recover those amounts in a case that has been pending in Connecticut state court since 2019.

In the Connecticut action, the debtor was ordered to produce by Dec. 14, the date of the Chapter 11 petition, documents that it tried to withhold as privileged, relating to its treatment of a purported loan with the parent company and the circumstances of its failure to pay its employees.

The employee group said that, rather than comply with the court order, AIG and the debtor are now “weaponizing the bankruptcy code in bad faith” to try to take advantage of the automatic stay of the Connecticut action, shield themselves and their executives from discovery and previously ordered disclosures, and dilute the claims of AIG Financial Products’ former employees.

The group said it will soon move to dismiss the case, and if that can’t be done, an independent trustee, either following conversion to Chapter 7 or appointment of a Chapter 11 trustee, should be charged with investigating the “apparent substantial transfers and dissipation” of the debtor’s assets before the Chapter 11 filing and, if appropriate, pursue claims against the parent company and other insiders.

Disclosure statement hearing

Meanwhile, the court has set a Jan. 25 hearing on approval of the disclosure statement for its pre-packaged Chapter 11 plan.

The plan of reorganization provides for the full satisfaction and release of the parent company’s prepetition revolving loan claim in exchange for the parent company’s retention of its existing AIG Financial interests. The parent won’t retain any existing AIG Financial interests or receive any other distribution on account of its allowed existing AIG Financial interests.

The prepetition revolving loan claim is an unsecured claim against the debtor, and as such ranks pari passu with the general unsecured claims and intercompany claims against the debtors.

The prepetition revolving claim is, however, senior to the subordinated claims held by the Connecticut plaintiffs.

If holders of subordinated claims vote to accept the plan, they’ll receive a share in a $1 million cash pool. They will receive nothing if they reject the plan.

General unsecured claims, other priority claims, other secured claims, intercompany claims and secured tax claims are unimpaired and deemed to accept the plan.

In the event the debtor doesn’t get enough votes to confirm the plan, it will pursue a 363 sale.

The Wilton, Conn.-based financial products company filed Chapter 11 bankruptcy on Dec. 14 under case number 22-11309.

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