General Motors Co. has reached an agreement to pay $50 million to put a closure to the long-running lawsuit over a secretive agreement made on the eve of its 2009 bankruptcy that critics claimed favored hedge funds. The deal terminates complex litigation wherein hedge funds affiliated with John Paulson and Paul Singer's Elliott Management agreed to cut the amount they claim they were owed in the bankruptcy of "Old GM."
GM had warned that the litigation could cost it around $918 million. Now, GM only has to pay $50 million thanks to the settlement, which still requires approval from the U.S. Bankruptcy Court in Manhattan at a hearing set on Oct. 21. The litigation commenced when a trust -- created to uncover money for creditors who were shortchanged by GM’s collapse in 2009 – filed a suit against the carmaker and the hedge funds in 2012. The trust challenged an agreement reached as GM was filing for bankruptcy.
Under the deal, the hedge funds agreed to waive their claims of over $1 billion owed to them by GM’s Nova Scotia unit in exchange for $367 million. The agreement was intended to keep GM Canada out of insolvency.
The new GM returned to the stock market in 2010 with unwanted sites and equipment liquidated for the benefit of creditors. However, other creditors of Old GM thought of the agreement as a sweetheart deal. The trust argued that the agreement should have been presented to the U.S. Bankruptcy Court for approval and should be unwound. However, GM said that doing so might expose it to claims of up to $918 million.