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Takata ¥1 tril. in debt, to file for bankruptcy

The Yomiuri Shimbun

The Yomiuri ShimbunTakata Corp., saddled with massive liabilities from a global recall of its defective airbags, has begun preparations to file for bankruptcy protection under the Civil Rehabilitation Law with the Tokyo District Court as early as next week, according to sources.

Takata’s liabilities are likely to exceed ¥1 trillion after the costs of recalls temporarily covered by automakers on behalf of the company are included. The company’s bankruptcy is expected to be the largest in the manufacturing industry since World War II.

Takata’s major operations are scheduled to be assumed by a new company to be created with financial backing from a Chinese-owned company. The new company will seek to rehabilitate the key operations.

The recall of Takata’s defective airbags, which involves major automakers around the world, has reached a major turning point with the decision to file for bankruptcy.

According to the sources, Takata will first apply for bankruptcy protection under the law. Key Safety Systems Inc., a U.S. auto parts maker owned by a Chinese company, will then invest about ¥200 billion to establish a new company.

The new firm will acquire Takata’s airbag, seat belt and other major businesses for about ¥200 billion. Takata plans to use this money and profits from some airbag-related businesses it will continue to operate to reimburse the recall costs temporarily being covered by Honda Motor Co., Toyota Motor Corp. and other automakers. Because the cost is believed to be about ¥1 trillion, automakers likely will be forced to forgive some of the debts under the rehabilitation procedures.

Takata’s airbags had defects that caused them to explode when inflated, expelling metal shards that caused injuries and deaths of drivers and passengers. About 100 million airbags are said to be subject to the global recall. Automakers that manufacture vehicles equipped with Takata airbags have individually launched recalls.

A third-party committee commissioned by Takata to craft a turnaround initially called for voluntary liquidation, in which the company would negotiate with automakers to reduce the costs of reimbursing the recalls. But voluntary liquidation does not involve courts and is less transparent than legal liquidation under the Civil Rehabilitation Law.

Calls have grown for a legal liquidation so that Takata’s shareholders, such as Chairman and Chief Executive Officer Shigehisa Takada and other founding family members, would be held accountable.

As of the end of March, Takata’s liabilities totaled ¥397.8 billion. If unclaimed recall expenses are included, the amount could top ¥1 trillion and exceed the ¥500 billion in debt incurred by Panasonic Plasma Display Co. before a 2016 bankruptcy that currently stands as the largest for a manufacturer in postwar history.

Meanwhile, Takata’s U.S. subsidiary is also expected to seek bankruptcy protection under Chapter 11, the equivalent to Japan’s Civil Rehabilitation Law. In January, Takata pleaded guilty to fabricating test data for its airbags and other criminal misconduct and reached a settlement with the U.S. Justice Department to pay about $1 billion (about ¥111 billion).Speech

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