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Takata bankruptcy reduces funds for air bag liability claims

Takata Corp. manufactures automotive airbags, and its products can be found in thousands of cars in Kentucky. Unfortunately, Takata's products suffer from a serious design defect, and the liability claims and fraudulent cover up have now forced the Japanese company to seek the protection of the bankruptcy court. This case provides a case study of how a business bankruptcy can eliminate or sharply reduce the amount of money available to pay liability claims.

Takata is expected to file a petition of a Chapter 7 bankruptcy on June 26 in which it will seek permission to sell its assets to another firm free and clear of all liabilities. The proceeds of the sale will be used to fund a settlement with the United States government. Takata's problems were caused by the chemical it used to inflate its airbags in the event of an accident. The chemical, ammonium nitrate, deteriorates when it is exposed to hot and humid air. In its deteriorated state, the chemical burns at great speed, almost like an explosion. The resulting blast causes the metal can that stores the ammonium nitrate to disintegrate, spewing metal fragments throughout the passenger compartment. The defective inflators have killed 11 people in the United States and 16 in other parts of the world. More than 180 persons have suffered devastating injuries.

Takata has already pleaded guilty to criminal fraud and agreed to pay a settlement of $1 billion in the case, with $850 million going to reimburse auto manufacturers for recall costs, $25 million to the government as a fine, and $125 million to victims. Lawyers for plaintiffs in the pending lawsuits say the amount of money available to pay victims amounts to pennies on the dollar compared to what a lawsuit without the effect of bankruptcy might yield.

While the Takata settlement dwarfs most bankruptcy and product liability cases, the pattern is often repeated to help smaller businesses avoid catastrophic liability. Anyone seeking advice about how bankruptcy can be used to protect a business may wish to consult an bankruptcy lawyer.

Source: Lexington Hearld-Leader, "Experts: Takata bankruptcy means air bag victims get," Tom Krisher, June 20, 2017

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