On Tuesday October 16th, battery developer and manufacturer A123 Systems has voluntarily filed petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in Delaware. After using $129 million out of their total of $249 million of federal grants as a part of a stimulus bill, A123 Systems said that the petitions, which do not include its overseas subsidiaries, were made so that they can sell its automotive business assets to Johnson Controls Inc. (JCI).

To ensure that A123 continues to operate normally until the transaction is completed, Johnson Controls has pledged to provided with $72.5 million in “debtor in procession” financing.

Under this agreement, JCI will pay A123 Systems $125 million and in return they will receive A123’s automotive technology, products, customer contracts, its two Michgan plants, its cathode powder facilities in China and A123’s stake in Shanghai Advanced Traction Battery Systems Co. There are also two provisions for Johnson Controls to license back certain technology to A123, which the latter will use in its commercial and government business.

“We believe the asset purchase agreement with Johnson Controls, coupled with a Chapter 11 filing, is in the best interests of A123 and its stakeholders at this time,” said the company’s CEO David Vieau.

He then added that the decision to sell the automotive business to Johnson Controls was made after a deal with the Chinese Wanxiang company for the purchase of 80 percent stake in A123 fell through “as a result of unanticipated and significant challenges to its completion”.

“Our interest in A123 Systems is consistent with our long-term growth strategies and overall commitment to the development of the advanced battery industry,” said Alex Monlinaroli, president of Johnson Controls Power Solutions. “We believe that A123’s automotive capabilities are a good complement to our existing portfolio and will further advance Johnson Controls’ position as a market leader in this industry.”