Fisker is just days away from filing for Chapter 11 bankruptcy, and the fight over its assets has already begun, with one lawyer claiming the startup is liquidating assets “outside of court supervision.”

At issue is the connection between Fisker and its largest secured lender, Heights Capital Management, an affiliate of monetary services company Susquehanna International Group. Heights loaned Fisker greater than $500 million in 2023 (with an choice to convert that debt into shares of the startup) at a time when the corporate’s financial troubles were emerging behind the scenes.

This financing was not originally secured by any assets. This modified after Fisker breached one in every of the arrangements for failing to timely file its third-quarter financial statements in late 2023. In exchange for waiving the breach, Fisker agreed to provide Heights priority for all of its current and future assets , giving Heights significant leverage. Not only did Heights gain pole position to find out what would occur to their assets in a Chapter 11 proceeding, however it also gave them the chance to rent their preferred restructuring specialist to oversee the corporate’s slow slide out of business.

Alex Lees, a lawyer with Milbank representing a gaggle of unsecured creditors owed greater than $600 million, said in the course of the first hearing within the proceedings Friday in Delaware bankruptcy court that it had taken “too long to get to this point.” He said Fisker’s late filing with regulators was a “minor technical error” that someway led to the startup “essentially handing over (the) entire company to Heights.”

“We think this was a terrible deal for (Fisker) and its creditors,” Lees said on the hearing. “The right thing to do would have been to declare bankruptcy a few months ago.” Meanwhile, he said, Fisker is “winding down business outside the court’s supervision” for Heights, which he said amounts to “suspicious activity.” Fisker spent the pre-bankruptcy period cutting prices and selling off vehicles.

Scott Greissman, a lawyer representing Heights’ investment arm, said Lees’ comments were “totally inappropriate and completely unsubstantiated” and derided them as “designed as sound bites” to be picked up by the media.

“There could be a lot of disappointed creditors in this case,” Greissman said, “more than Heights.” He said Heights gave Fisker “tremendous credit.” He later added that even when Fisker is in a position to sell its entire remaining inventory – about 4,300 Ocean-branded SUVs – such sales “may possibly pay off a fraction of Heights’ secured debt,” which currently stands at greater than $180 million.

Lawyers told the court Friday that they’d essentially entered into an agreement to sell Ocean SUVs to an unknown vehicle leasing company. However, it is not immediately clear what other assets Fisker could sell to supply repayment to other creditors. The company claimed to have assets price between $500 million and $1 billion, but filings up to now have only detailed production equipment, including 180 assembly robots, a complete line of chassis, a paint shop and other specialized tools.

Lees was not alone in his concerns about Fisker’s bankruptcy filing. “I don’t know why it took so long,” Linda Richenderfer, an attorney with the U.S. Trustee’s Office, said in the course of the hearing. She also noted that she was still reviewing latest submissions late Thursday and within the hours before the hearing.

She also expressed “great concern” that the case could turn right into a straight Chapter 7 liquidation after the sale of Ocean’s inventory, leaving other creditors scrambling for the scrap.

Greissman said at one point that he agreed that Fisker “probably took longer” than needed to file for bankruptcy protection and that a few of these disputes might have been “easier resolved” if the case had began earlier. He even said he agreed with Richenderfer that “even with a fleet sale, Chapter 11 may not be sustainable.”

The parties will meet again at the following hearing, which can happen on June 27.

Before dismissing everyone, Judge Thomas Horan thanked all parties involved for attending to the hearing “reasonably smoothly” despite the deluge of paperwork this week. He specifically criticized Trustee USA’s office for working under “really difficult circumstances” to “crawl the case” with “minimal controversy, given the general scheme of things.”

“I imagine there are a few people who want to get some sleep right now,” he said with a smile at the top of the hearing.