Corporate Insolvencies Caused by Debt and Lack of Transparency: Lessons from the Case of First Brands

The First Brands Case – What Happened

First Brands, a US supplier of automotive aftermarket parts, filed for Chapter 11 bankruptcy in early 2025. The company had accumulated liabilities in excess of ten billion dollars, much of it hidden in complex structures that were not fully visible to outsiders.

The use of financing methods such as factoring and supply chain finance became particularly problematic, since they often do not appear transparently on balance sheets. As long as liquidity remained stable, the model seemed sustainable. But once lenders demanded more transparency and withheld payments, the liquidity crisis intensified. Within months, the company was insolvent.

Key Takeaways

The US auto supplier First Brands has filed for bankruptcy. The case highlights the dangers that arise when companies rely heavily on debt while using opaque financing models. Off-balance sheet structures, aggressive credit instruments, and weak governance undermined trust among investors and business partners and ultimately led to collapse.

Similar insolvencies in recent years – such as Wirecard, Greensill Capital, or Carillion – demonstrate that these issues are not confined to one sector. The clear lesson for companies in Europe and beyond: Governance, Risk Management, and Compliance (GRC) are essential for building trust and preventing crises.

Parallels to Previous Insolvencies

First Brands is part of a broader pattern. Several high-profile corporate collapses in recent years were driven by excessive debt, opacity, and governance failures.

• Wirecard (Germany, 2020): The largest accounting scandal in postwar Germany, with manipulated balance sheets and weak oversight.
• Greensill Capital (UK, 2021): A supply-chain finance provider that collapsed under opaque credit chains and unsustainable risk exposure.
• Carillion (UK, 2018): A construction and services giant brought down by aggressive accounting and lack of risk controls.

All of these cases share the same DNA: over-leverage, insufficient governance, lack of transparency, and a culture of ignoring risks until it was too late.

Governance – When Oversight Fails

The First Brands bankruptcy shows that governance is only effective when it is actively applied. Boards of directors must have both the competence and the courage to question complex financial structures. If oversight bodies simply rely on management reports without scrutiny, systemic risks remain hidden.

Governance means more than formal oversight. It requires active, critical engagement to ensure that business models rest on solid, sustainable foundations.

Risk Management – An Underestimated Early Warning System

Risk management could have acted as an early warning system in all these cases. Red flags such as high debt ratios, financing instruments off the balance sheet, dependency on a small number of lenders, or a lack of liquidity stress tests should have triggered corrective action.

Organizations applying international standards such as ISO 31000 are better positioned, as this framework provides a systematic approach to identifying, assessing, and monitoring risks. Risk management must be understood as a strategic tool to safeguard long-term viability, not just a compliance exercise.

Compliance – Regulation as a Safeguard

Compliance also plays a crucial role. European regulations such as the CSRD and ESRS standards demand greater transparency in corporate reporting. On a global scale, frameworks like ISO 37301 for compliance management systems provide further guidance.

These requirements are not bureaucratic burdens but safeguards that build trust with investors, regulators, and business partners. Companies that embrace compliance as a protective shield are less exposed to the kind of risks that brought down First Brands.

Lessons for Companies

The central lesson is clear: opaque financing and excessive debt are systemic risks – not only for the companies involved, but also for industries and supply chains. For European and international businesses, this translates into three priorities:

• Strengthen governance structures so that even complex financial models can be critically examined.
• Establish risk management that goes beyond standard scenarios and includes stress tests and worst-case analysis.
• Use compliance requirements as tools to build transparency and prevent crises.

Conclusion

First Brands is yet another reminder that GRC is not an abstract concept or a “nice-to-have” – it is a decisive factor for sustainable corporate success. Companies that take governance, risk management, and compliance seriously protect not only themselves, but also their investors, partners, and customers.

FAQ

Why are insolvencies like First Brands relevant for GRC?
Because they show that lack of transparency, weak controls, and poor risk management can trigger systemic crises.

Can this also happen in Europe?
Yes. Wirecard, Greensill, and Carillion demonstrate that European companies face the same risks.

Which standards help manage risks more effectively?
Key frameworks include ISO 31000 (risk management), ISO 37301 (compliance), ISO 27001 (information security), and the European CSRD and ESRS requirements.

What role does transparency play?
Transparency is the decisive factor in building trust with investors, regulators, and business partners. Without it, risks are discovered too late.