GM may lose almost $1 billion from bankruptcy-related lawsuit

Article by Christian A., on January 7, 2013

There may soon be a ruling from a U.S. bankruptcy judge on whether the 2009 government-led restructuring of General Motors Co. had improperly favored hedge funds. GM may lose almost $1 billion if it gets an adverse decision. Judge Robert Gerber has to decide if a "lock-up agreement" in the restructuring released $367 million to a certain hedge fund noteholders at the expense of other creditors.

A lawsuit was filed by a trust that represents unsecured creditors to undo the lock-up agreement, asserting that it was a last-minute agreement hidden into GM's bankruptcy to guarantee the support of the hedge funds. Soon after "Old GM" filed for bankruptcy in 2009, its premium assets were sold to the new General Motors Co. What was left of the company was liquidated to benefit the creditors.

The hedge funds, which hold notes with about $1 billion in face value, got the $367 million under the lock-up agreement; however, unsecured creditors got only pennies on the dollar. In addition, the hedge funds and other investors in the notes received a claim against "Old GM" that cost $2.67 billion. Under this lawsuit pending before the U.S. Bankruptcy Court in Manhattan, the creditors' trust claimed that the lock-up agreement was not fair to "Old GM" creditors.

The trust said that the agreement happened after the bankruptcy filing and so it needed Gerber's approval. To undo the deal, Gerber was called again. GM and the hedge funds have asserted that since the lock-up agreement was sealed before the bankruptcy, Gerber didn’t need to approve it. Furthermore, they alleged that the deal wasn’t kept a secret since it was divulged in securities filings. They also insisted that the lock-up agreement cannot be unwound without undoing the entire restructuring.

Topics: gm, bankruptcy, lawsuit

If you liked the article, share on:

Comments

Recommended

Skoda recently launched the new Karoq compact SUV as a replacement model to its now-defunct Yeti small crossover. Slotted below the newly introduced Skoda Kodiaq, the new Karoq features a...
by - May 23, 2017
There are already rumors suggesting that the next generation BMW 5-Series GT is expected to be joining the 6-Series range. The latest reports instead tell us that that 3-Series GT...
by - May 23, 2017
In 2004, the British marque Rolls-Royce officially entered South Korea with the opening of their showroom located in Seoul before opening their second showroom last September in Busan. Now RR...
by - May 23, 2017
In a game-changing move, Ford has revealed that it will soon produce its first ever all-electric CUV that will be built to be electric from the ground up, and it...
by - May 23, 2017
The wait for the Mustang’s GT-based Super Snake concept to be released is finally over. Shelby had recently collaborated with Ford Performance and Borla to come up with something that...
by - May 23, 2017
Facebook

Youtube Channel

Tip Us
Do you have a tip for us?
Did you film an important event?
Contact us
Newsletter
Subscribe to our newsletter!
Subscribe
Galleries