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Takata Given Room to Breathe Over Defective Airbags for Now

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Wilmington, DEA vilified auto parts manufacturer at the center of the largest automotive recall in US history over defective airbags has been granted a bit of breathing room by the courts with regard to its bankruptcy proceedings. When combined with some temporary concessions granted by its client automakers, Takata Corp. will be in a better position to remain relatively healthy long enough to fulfill various obligations deemed integral by the courts and the automotive industry – the latter wanting to ensure Takata will be in a position to manufacture the replacement inflators needed to replace defective units that have injured, maimed or killed scores of drivers or passengers.

An ill-advised decision made several years ago by Takata to switch to a less-expensive but more-volatile propellant for its airbags due to the lower cost – while allegedly knowing the risks to occupants – culminated in a massive automotive recall after airbags began deploying with significant force, shattering the metal inflator casings and sending shards of sharp metal flying directly into the path of occupants. Scores have been injured – many seriously – and there have been a dozen deaths globally.

Takata, the biggest supplier of airbags to the automotive industry, pled guilty to one count of wire fraud this past February, according to Law360 (11/20/17). In June, the automaker filed for Chapter 11 bankruptcy protection and was recently granted Chapter 15 status. Last week, on November 20 the bankruptcy judge in Delaware who is presiding over the case agreed to allow an extension of an August freeze for individual claims through February 27 of next year, while a stay on state enforcement claims will be revisited in 30 days from that date – in other words, a week before Christmas.

Meanwhile, Takata’s automotive clients are foregoing, at least for now, payment rights they won in court in order to help Takata stay afloat long enough to keep manufacturing replacement airbag inflators with less-volatile, more stable propellant in order to satisfy the massive recall of vehicles. The manufacturers, as part of Takata’s plea, won $850 million in restitution. They’re foregoing those payments to help Takata free up a reported $300 million in liquidity for the manufacture of replacement inflators, and to put the company on the best footing for acquisition by Key Safety Systems Inc., a Takata competitor.

Airbags were originally designed to augment safety belts and seat harnesses by helping to protect the driver, and front passengers from frontal crashes. Deployment has been adjusted over time with regard to concern over children and smaller occupants who were deemed at risk by the ferocity of deployment. However, the airbag itself and the speed of deployment were the issue – not the inflators – and with injuries quite rare, both the automotive industry and vehicle owners embraced the airbag concept. As the added safety and benefit of airbags became increasingly apparent, manufacturers began installing more of them in cars – to that end it is not uncommon to see side airbags, curtain airbags and rear airbags as standard equipment on most vehicles. Airbag suppliers such as Takata saw their enterprises grow in kind.

Soon, however catastrophic airbag injuries involving airbags supplied by Takata began to occur. In tandem with the deployment of the airbag, metal inflators were shattering sending shards of sharp metal towards occupants. One woman had a shard pierce her eye, while another experienced a fatal injury to the carotid artery in her neck. Others have suffered wounds to their chest and abdomen. In Las Vegas last spring, a young woman had pieces of inflator shards pierce her throat after the airbag deployed due to a relatively minor frontal collision. The victim, Karina Dorado is lucky to be alive, but suffered injuries to her neck and vocal chords and will need ongoing therapy. Like others, she has filed a defective airbag lawsuit.

Upon investigation it was found that Takata had switched to ammonium nitrate, a less-expensive but more volatile form of propellant that tends to become increasingly unstable with age and in areas of high humidity. It has been alleged that Takata knew of the problem, but withheld the information.

The Chapter 11 bankruptcy is In re: TK Holdings Inc. et al., Case No. 1:17-bk-11375, the Chapter 15 case is In re: Takata Corp., et al., Case No. 1:17-bk-11713, and the adversary case is TK Holdings Inc. v. Hawaii et al., Case No. 1:17-ap-50880, all in the US Bankruptcy Court for the District of Delaware.

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