Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Oct 17, 2012

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After filing for Chapter 11 bankruptcy Tuesday, A123 Battery Systems Inc. has agreed to sell its automotive business assets to Johnson Controls.

The Massachusetts-based battery maker was previously set to sell a majority stake to Chinese auto parts manufacturer, Wanxiang Group, in an effort to save the failing company, but the deal was never finalized, according to reports in The Wall Street Journal.

Reports say that in addition to the $125 million sale, Johnson Controls will give A123 $72.5 million to continue operating two U.S. battery plants. This coupled with the bankruptcy filing will allow production to continue and for A123 to continue building and supplying lithium-ion batteries to automakers.

A123’s Chapter 11 was filed in U.S. Bankruptcy Court in Delaware claiming millions in debt to three Michigan cities, Livonia, Novi and Romulus, where the company runs facilities employing over 700 people. The filing also includes $376 million in debt and $459.8 million in assets, and lists U.S. Bank as its largest debtor with $142.8 million owed, according to Automotive News Europe.

The battery maker was among the recipients of the Obama administration’s $2 billion stimulus offering to spark green-energy development in the automotive industry. This fact has caused some political controversy over the company’s bankruptcy.

In filing for Chapter 11, however, the company may be able to generate a successful debt repayment plan and get back on track. The purpose of filing this type of bankruptcy, as we’ve seen with many large U.S. companies in recent years, is to remain in business, continue to employ workers, and avoid completely liquidating. The bankruptcy sale is an important aspects of commercial bankruptcies as it supplies the company with immediate cash flow to continue operating while it works with the Bankruptcy Court and its creditors to generate a feasible restructuring approach.

Johnson Controls has stepped in to save the company, but it will be up to A123 to emerge from bankruptcy in a better financial state.

Learn more about bankruptcy law from these FreeAdvice Bankruptcy Law articles.