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Takata Shares Suspended as Bankruptcy Talks Near Completion

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Reuters recently announced that shares in Takata Corp. were suspended on April 27, 2017. The struggling company, which has recalled a record number of vehicles worldwide because of airbag ruptures, is considering filing for bankruptcy protection.

The news comes shortly after the announcement that former director of the Federal Bureau of Investigation (FBI) Robert S. Mueller III is likely to be appointed to oversee the Takata airbag compensation fund. The company has set aside $125 million for individuals who were physically injured in accidents involving a faulty Takata airbag.

Plans in the Works to Create a New Airbag Company

Talks of “rescuing” Takata have been going on for a while. According to Business Insider, companies interested in taking over operations have been in talks for fourteen months. Some of the key players include Key Safety Systems Inc., a U.S.-based company that makes airbags, seatbelts, and steering wheels, and Bain Capital LLC., a U.S.-based private equity fund.

The deadline for a deal was supposed to be at the end of March, but so far things are still undecided. Now it appears that talks will continue through the end of May, at least.

With a recent media report released about the bankruptcy consideration, sales of the company’s shares were temporarily halted. The plan at this point is for the company to file for bankruptcy protection and then sell its core operations to a new company.

France24 reported that an external committee working to formulate a rescue plan for Takata recommended Key Safety Systems, which would put up about $1.79 billion to create the new company. This move would create an “old” and “new” company, allowing for payments to creditors and automakers for airbag recall expenses, and the eventual liquidation of the old Takata.

Automakers like Honda and Toyota reportedly agree that bankruptcy is the way to go, but it looks like Takata is still hoping for a private restructuring. The latter would preserve some of the shareholder value, but it looks unlikely, as it would require them to repay billions that they can’t afford.

Takata Needs to Make a Decision Soon

Time is not unlimited for Takata to decide. The stock has plummeted since they started recalling vehicles in 2014 for airbag-related problems. If a solution remains undetermined, the company could face collapse.

Meanwhile, Takata faces a number of lawsuits in the U.S., centralized for pre-trial proceedings in Florida. They’re also still responsible for creating and distributing the replacement airbag inflators that are required for the millions of vehicles that have been recalled but not yet repaired.

Takata was fined $1 billion and pled guilty to wire fraud in January 2017 as part of a settlement with the U.S. Department of Justice (DOJ). $25 million of that was to pay criminal fines, while a total of $125 million is to go to victims and $850 million to automakers. In a separate agreement with the National Highway Traffic Safety Administration (NHTSA) back in November 2015, they agreed to pay $70 million for safety violations.

Federal prosecutors have also brought criminal charges against three executives at the company who are accused of altering airbag test results and concealing important safety information from regulators and the public.