New GM could be undone by a lawsuit

Article by Christian A., on August 8, 2012

A lawsuit set to go on trial earlier this week may lead to the undoing of the new General Motors Co. This litigation pits the general creditors against a group of hedge funds, which include Appaloosa Management LP, Elliott Management Corp. and Fortress Investment Group LLC for more than $3 billion. Last March, a trust for creditors of the Motors Liquidation Co. (the old, bankrupt part of the automaker) filed a lawsuit against the hedge funds in Manhattan bankruptcy court.

They claim that when GM was preparing its bankruptcy filing on June 1, 2009, the funds (which held notes in a Canadian unit of GM) saw a last-minute chance to make a profit and swiftly made its move.

The trust is seeking to get a $2.67 billion claim and a $367 million payment negotiated for holders of notes in GM's Nova Scotia unit disallowed or reduced. It said that the hedge funds presently are hoping to get more than three times what GM really owed them.

These amounts, which were cited in a settlement referred to as the "Lock-Up Agreement,” concluded a dispute the hedge funds had initiated over an intercompany claim that GM's Nova Scotia Finance unit held against GM Canada.

GM, which split off from the bankrupt unit by purchasing its assets July 10, said the trust's objections "threaten to disturb" the sale that had rescued the automaker, permitting it to thrive. The lawyers for the company said that New GM wants to join in the trial of the claims objection to the extent necessary to defend and preserve the sale order. [source: Bloomberg]

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