Electric vehicle brand Lordstown Motors is seeking to preempt former business partner and Taiwanese tech manufacturer Foxconn from earning profits through the sale of assets, according to a bankruptcy court filing in Delaware.
The EV manufacturer delivered its plan for repaying creditors to the court on September 1, proposing to auction off its assets to cover roughly $20 million in debt to suppliers and another $40 million to its competitor Karma as part of a settlement arranged in August. Any remaining proceeds from the sale would be distributed to Lordstown Motors shareholders, but the electric vehicle brand moved to exclude Foxconn from these potential profits in its proposal.
Foxconn agreed to purchase a $100 million stake in Lordstown Motors in 2022, with $52.7 million due upfront and the remaining $47.3 million to be paid once the Committee on Foreign Investment in the United States (CFIUS) certified the investment. Although the CFIUS approved the deal in April this year, Foxconn accused the EV maker of breaching its contract by failing to keep its stock value above the NASDAQ’s $1 minimum price point and refused to pay the remainder of its purchase. In a filing with the Securities and Exchange Commission, Lordstown Motors argued that the terms of the deal required Foxconn to fulfill its commitment once CFIUS certification was obtained “in any event,” filing a lawsuit against its business partner shortly after. However, without the expected funds, the electric vehicle brand was ultimately forced to file for bankruptcy in June.
While the court will ultimately decide whether the proposed bankruptcy plan will proceed, Lordstown Motors is likely to take any and all steps to ensure that Foxconn is unable to profit from a catastrophe it allegedly contributed to. Nevertheless, even if the exclusion is approved, it may prove to be unnecessary. In its filing, the electric vehicle brand noted that the value of its assets was “necessarily speculative” and that earnings from the auction “could potentially be zero.” Even if the sale generates cash, the company will still be required to satisfy its debts before it can pay its shareholders.
