Bankruptcy judge okays GM sale plan, appeal looms

Attorneys for some of GM's bondholders, unions, consumer groups and individuals with lawsuits against the company argue for its rejection.

July 7, 2009 10:19
3 minute read.

A bankruptcy judge has ruled that General Motors Corp. can sell the bulk of its assets to a new company, potentially clearing the way for the automaker to quickly emerge from bankruptcy protection. US Judge Robert Gerber said in his 95-page ruling late Sunday that the sale was in the best interests of both GM and its creditors, whom he said would otherwise get nothing. But it appears the ruling will be appealed. A Chicago law firm representing people who have sued GM in several auto accident cases filed paperwork Monday saying it would appeal to US District Court in New York. The ruling comes after a three-day hearing that wrapped up Thursday, during which GM and government officials urged a quick approval of the sale, saying it was needed to keep the automaker from selling itself off piece by piece. "This has been an especially challenging period, and we've had to make very difficult decisions to address some of the issues that have plagued our business for decades," GM President and CEO Fritz Henderson said in a statement early Monday. "Now it's our responsibility to fix this business and place the company on a clear path to success without delay." But attorneys for some of GM's bondholders, unions, consumer groups and individuals with lawsuits against the company argued for its rejection, saying their needs were being ignored in favor of the interests of GM and the government. Lawyers for five "individual accident litigants" filed a notice of appeal with the bankruptcy court Monday morning that gave no grounds or details. The deadline to appeal is noon Thursday, after which point Gerber's order takes effect and the sale is free to close. Last month, a group of bondholders and others took their objections to Chrysler LLC's sale plan all the way to the Supreme Court, delaying the Auburn Hills, Michigan-based automaker's exit from bankruptcy protection. Several consumer groups have opposed provisions in the sale that free the new company from liability for consumer claims related to incidents that occurred before GM went into bankruptcy protection. That means that people injured by a defective GM product in connection with an incident that occurred before June 1 would have to seek compensation from the "old GM," the collection of assets leftover from the sale, where they would be less likely to receive compensation. GM's government-backed plan for a quick exit from Chapter 11 is dependent on the sale, which will allow the automaker to leave behind many of its costs and liabilities. The Treasury Department has vowed to cut off funding to GM if the sale doesn't go through by July 10. The Detroit car maker's Chapter 11 filing on June 1 was the fourth-largest in US history. (Under Chapter 11 reorganization, a company can stay in operation under court protection while it sheds debts and unprofitable assets to emerge in a stronger financial position). GM will leave bankruptcy court with significantly reduced debt and labor costs, as well as fewer dealerships and brands. But it's still operating in an environment where fewer American are buying cars. At the current pace, automakers will sell about 9.7 million vehicles this year. That's a reduction from sales of more than 16 million vehicles as recently as 2007. In June, the automaker captured 20.3 percent of the US market. GM has estimated that it can maintain a market share between 15% and 17%, reflecting its plan to sell off three brands and end its Pontiac line. The company is expected to receive $50 billion in taxpayer funds. In exchange for those funds, the government will own about 61% of the "new GM." The Obama administration has said it does not plan to interfere with the day-to-day running of the company, though government has been involved in the selection of the new company's 13-member board of directors and change of control transactions. Assets that GM does not sell to the new company will become part of the separate "old GM," which the company said Monday will be known as Motors Liquidation Co., and will be sold to the highest bidder under court supervision. The old GM will include a smattering of properties, several of which are facilities already slated to be closed. Other assets to be filed under the old GM include brands like Hummer, Saturn and Saab, for which GM has lined up buyers. They also include all current GM common stock, which - despite its active trading on over-the-counter markets - will soon be worthless. The old GM will remain an entity until all of the facilities are sold off, a process that could take months or years to complete. The government has said it plans to provide about $1.18b. to fund the wind-down process.

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