Faraday Future founder Jia Yueting has filed for bankruptcy in a US federal court with plans to hand control of the company to his lenders, the firm said on Monday, marking what may be a turning point for the troubled electric vehicle maker.
Why it matters: Faraday Future, or FF, will be no longer liable for Jia’s liabilities upon completion of the individual debt restructuring, which may help the cash-starved company seek new investors to fund mass production of its first model FF91 by its self-imposed September 2020 deadline.
- The restructuring allows for Jia to return to China and rebuild his reputation, which may help the would-be automaker reach its goals and “brings great impetus to FF’s capital raising efforts and planned future IPO,” according to a statement released Monday.
Detail: Jia filed for Chapter 11 on Sunday with a plan to swap his debts for all of his equity in the Los Angeles-based EV startup.
- A creditor trust, jointly managed by a committee of creditors and a trustee, will be set up to receive Jia’s ownership stake in FF’s holding company, Smart King Ltd., to satisfy his debts.
- Creditors will only recover from 49% to 100% of what they are owed if and when the company goes public, according to filings.
- Jia will no longer hold his interest in FF if the restructuring goes through, but is expected to return to China as a pivotal figure for FF’s business in the country.
- The embattled Chinese entrepreneur acknowledged unpaid debts of around $3.6 billion owed to more than 100 creditors to date, 90% of which he guaranteed for his businesses in China.
- Jia was placed on a national debtor blacklist and fled to the US in late 2017, after amassing mounting debts for his technology conglomerate LeEco due to rapid expansion and mismanagement.
- He claimed to have repaid more than $3 billion toward his debts to date, and all his shares at Leshi (also known as LeTV), a Shenzhen-listed subsidiary of LeEco, have been frozen by Chinese courts, according to a company statement released last week.
Context: After months of furloughs, layoffs, and pay cuts, FF is struggling to retain relevance in the Chinese EV market.