Air bag maker Takata braces for hit

The Star Early Edition - - INTERNATIONAL - Tom Hals and Tina Bellon

THE global re­call of Takata Corp’s de­fec­tive air bags widened last week and the num­ber of con­firmed deaths rose, but le­gal ex­perts said the big­ger worry for car com­pa­nies caught in the fall­out is play­ing out in a Delaware bankruptcy court­room.

Ear­lier this month, peo­ple in­jured by the air bags, which de­grade over time and can in­flate with ex­ces­sive force, were ap­pointed to their own of­fi­cial com­mit­tee in the Ja­panese com­pany’s US bankruptcy, giv­ing them a pow­er­ful voice in the pro­ceed­ings.

This un­usual com­mit­tee, which in­cludes peo­ple whose cars lost value due to the re­call, will be pit­ted against Honda Mo­tor Co, Toy­ota Mo­tor Corp, and other ve­hi­cle mak­ers.

The car com­pa­nies have been try­ing to use the bankruptcy to limit their li­a­bil­ity for in­stalling the faulty air bags, said Kevin Dean, a Mot­ley Rice at­tor­ney who rep­re­sents in­jured driv­ers on the com­mit­tee.

Be­cause the com­mit­tee has of­fi­cial sta­tus, Takata must pro­vide it with funds which can be used to in­ves­ti­gate the car maker’s li­a­bil­ity or to chal­lenge fi­nan­cial as­sump­tions. Without a com­mit­tee, plain­tiffs’ lawyers would typ­i­cally have to pay for that them­selves.

“If I were a plain­tiffs’ lawyer, this would be a golden goose for me,” said John Pot­tow, a pro­fes­sor at the Univer­sity of Michi­gan Law School, of the ap­point­ment of the spe­cial com­mit­tee.

Takata, Honda, Toy­ota and Gen­eral Mo­tors Co de­clined to com­ment.

Bank­rupt­cies typ­i­cally only have one of­fi­cial cred­i­tors com­mit­tee. In the Takata case, the com­mit­tee of in­jured driv­ers will sit along­side an­other made up of sup­pli­ers and ven­dors, who are likely more in­ter­ested in the fu­ture of the busi­ness than com­pen­sa­tion dis­putes.

Both com­mit­tees were ap­pointed by the US Trustee’s Of­fice, the arm of the US De­part­ment of Jus­tice that acts as a bankruptcy watch­dog.

Seven­teen fa­tal­i­ties, in­clud­ing one con­firmed last week, and at least 180 in­juries have been tied to Takata’s air bags since at least 2009.

Last week, the Na­tional High­way Traf­fic Safety Ad­min­is­tra­tion widened a global re­call of the air bags, which reg­u­la­tors ex­pect to ul­ti­mately cover 69 mil­lion cars and 125 mil­lion in­fla­tors. Most de­fec­tive air bags have not been re­placed.

In Jan­uary, Takata en­tered a set­tle­ment with the US De­part­ment of Jus­tice, set­ting aside $125 mil­lion (R1.6 bil­lion) to com­pen­sate con­sumers and $850 mil­lion in resti­tu­tion for ve­hi­cle mak­ers.

Com­pen­sa­tion Fund

Fac­ing up to $50 bil­lion in li­a­bil­ity, Takata filed for bankruptcy in June in Ja­pan and the US with a plan to sell its non-air bag oper­a­tions for $1.6 bil­lion to Key Safety Sys­tems, which is owned by China’s Ningbo Joyson Elec­tronic Corp. Its air bag busi­ness would con­tinue to make re­place­ments for the 125 mil­lion re­called in­fla­tors.

Takata said in its Chap­ter 11 fil­ings that it would cre­ate a fund to com­pen­sate fu­ture in­juries stem­ming from the air bags.

Com­pa­nies that wind up bank­rupt due to faulty prod­ucts of­ten set up such funds, and gather con­tri­bu­tions from in­sur­ers and other po­ten­tially li­able par­ties, who in re­turn get shielded from on­go­ing lit­i­ga­tion.

Ve­hi­cle mak­ers would likely de­mand sim­i­lar le­gal pro­tec­tions in re­turn for con­tribut­ing to a Takata fund, and the com­mit­tee will likely hire ex­perts to chal­lenge those pro­pos­als, bankruptcy ex­perts said.

Some ex­perts said they ex­pected the par­ties to avoid pro­tracted le­gal bat­tles which have marred other prod­uct li­a­bil­ity bank­rupt­cies like those in­volv­ing as­bestos.

Pot­tow, at the Univer­sity of Michi­gan Law School, cau­tioned that may not be so sim­ple.

“We’re in pretty novel ter­rain here, given the amount of par­ties and the re­call in­volved.” – Reuters

Photo: Reuters

A woman stands next to a Takata logo at a ve­hi­cle show­room in Tokyo, Ja­pan.

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