Founder of EV Startup Faraday Future Files for Bankruptcy Protection
The founder and CEO of financially troubled electric vehicle startup Faraday Future (FF) has filed for bankruptcy restructuring under Chapter 11 in the U.S.
According to the statement released by FF, Yueting "YT" Jia has filed for bankruptcy in a Delaware court protection to address his personal debts in China. In connection with the filing, a ‘creditor trust' for the benefit of YT's creditors is planned to be established. The trust will be jointly managed by a committee of creditors and the trustee.
In connection with the filing, a creditor trust for the benefit of YT's creditors will be established. Then after certain conditions are met, YT will transfer all of his personal assets in the United States to the trust.
The voluntary filing is an effort by JT to keep his promise to perform all of his obligations to the creditors and completely pay off his personal debts in a way that would offer each creditor an equal opportunity to be paid off. JT reportedly still owns $3.6 billion to creditors, that's after paying off $3 billion.
A statement released by Faraday Future claims that YT has repaid over US$3 billion worth of debts, with unpaid amount of $3.6 billion. Jia is on a national debtor blacklist in his home country of China where he reportedly owes hundreds of millions of dollars to various creditors of the multinational conglomerate LeEco, which YT founded in 2011, along with its subsidiaries.
In Dec 2018, A federal judge froze the Faraday Future CEO's ownership stake in the company, and put a protective order on the mansions he owns in California. The freeze was a result of a lawsuit filed earlier this week in the central district court of California by a Chinese company called Shanghai Lan Cai Asset Management Co, Ltd (SLC). The company claims Jia never paid back a 50 million yuan (~ $7 million) loan to his other company LeTV, a subsidiary of LeEco.
Over 90% of YT's debts are debts he guaranteed for his businesses in China, according to the company's press release. Since certain creditors froze all the assets and operating accounts of YT and LeEco group, which are worth much more than the original amount owed, that directly caused a halt to the ordinary operation of LeEco group and led to its collapse.
Faraday Future claims its financial crisis was brought about by Evergrande, its largest financial backer and shareholder, for its refusal to make scheduled payments. Evergrande claimed Faraday wasted hundreds of millions of dollars developing the FF91, while Faraday insisted that Evergrande had broken agreements to make payments to the company.
The disbursement of the funds was contingent on Faraday meeting agreed upon production goals for its the company's first vehicle, which Evergrande said Faraday failed to achieve.
Last year, company officials said Evergrande breached its contractual obligations to Faraday by refusing to release its liens over the company's assets, making it more difficult for FF to achieve short-term financing through asset backed loans.
Faraday Future was once seen as a serious rival to Tesla, but the company was forced to scale back its operations and lay off employees as it burned through cash. Last October, FF announced significant layoffs and employee salary cuts of 20 percent, as the company burned through its cash. JT agreed at the time to forfeit his salary and be paid a salary of just $1 per year.
Faraday Future's first electric vehicle is the FF91 SUV, a 1,000 hp, luxurious, fully-electric, autonomous-ready vehicle offering high-performance with an intelligent user experience. The state-of-the-art vehicle was designed to compete with the Tesla Model X. However, financial problems halted the development of the FF91 and its release date was continuously pushed forward.
After the completion of his chapter 11 plan, YT will no longer hold his existing equity interest in Smart King Limited. YT plans to transfer all his existing equity interest in Smart King Limited, the global holding company for Faraday Future, to the creditor trust to better protect his creditors and repay his debt.
The company released a statement saying that the bankruptcy filing will not affect any of FF's normal business operations. The bankruptcy plan provides YT an opportunity to address his personal debts, help facilitate FF's equity financing efforts and prepare for an IPO, and further advance the implementation of FF's US-China dual home market strategy.
The statement also said that YT will continue to be involved with the FF team as its founder and Chief Product & User Officer (CPUO) and to maximize the value of FF and the assets in the creditor trust.
FF is among a handful of new electric vehicle startups to follow Tesla's lead. The company joins California-based EV startups Lucid Motors, SF Motors (now called Seres) and Byton, all of whom are trying to launch their own luxury electric models.
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