(Bloomberg) -- Distressed-debt financier Lynn Tilton put Dura Automotive Systems LLC into bankruptcy with plans to buy the automobile parts company back at a court-approved auction.

The filing in Nashville, Tennessee, comes as Tilton continues several years-long court battles with creditors for ownership of many of the companies she controls through various funds and holding companies. One of those entities, Zohar III Corp., is also in bankruptcy.

Tilton blamed Dura’s filing on one of those ongoing disputes, saying the fight has blocked the company from getting the financing it needs to grow. Bond insurer MBIA Inc. has been leading the effort to seize many of the companies, claiming that Zohar and other Tilton-related entities have failed to pay their debts.

This is the second trip into bankruptcy for Auburn Hills, Michigan-based Dura, which listed $130 million in funded debt in court filings. Tilton’s Patriarch Partners bought the company for $125 million in 2010, less than two years after Dura exited bankruptcy.

What’s Included

Lawyers for MBIA didn’t immediately respond to requests for comment. A spokesman for Patriarch and Tilton declined to comment. The company will operate normally while it restructures its finances. Dura’s international units are not part of the bankruptcy.

Last year Dura tried to attract a buyer. Tilton plans to loan Dura $50 million to keep operating while it reorganizes and seeks to sell itself under court supervision, the financier said in a statement. During the bankruptcy, Dura would hold an auction for itself in which a company controlled by Tilton has agreed to be the lead bidder, according to the statement.

In bankruptcy, an owner must pay all creditors before being allowed to retain their stake. To get around this so-called absolute priority rule, owners can invest new money in a bankrupt company, or make the highest bid at a court-supervised auction.

The auto parts maker listed assets and liabilities of as much as $500 million in its Chapter 11 petition in the Middle District of Tennessee.

The case is Dura Automotive Systems LLC, 19-bk-06741, U.S. Bankruptcy Court for the Middle District of Tennessee (Nashville)

Story Link: Tilton’s Dura Automotive Systems Files for Chapter 11 Bankruptcy

To contact the reporter on this story: Steven Church in Wilmington, Delaware at schurch3@bloomberg.net

To contact the editors responsible for this story: Rick Green at rgreen18@bloomberg.net, Nicole Bullock

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