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Federal bankruptcy judge approves GM restructuring plan

By Bernard Hibbitts (editor) and University of Pittsburgh School of Law students.

[JURIST] A federal bankruptcy judge on Sunday approved the sale of assets held by General Motors (GM) to a new, government-backed company. Judge Robert Gerber of the US Bankruptcy Court for the Southern District of New York granted a motion seeking the court's approval for sale of the automaker under US Bankruptcy Code § 363 to Vehicle Acquisition Holdings, a company set up by the US Department of the Treasury expressly to facilitate the sale. Under the terms of the Master Sale and Purchase Agreement filed in June, the US government would retain a majority interest in the restructured company, with the balance held by the Canadian government, the United Auto Workers (UAW), and institutional investors. The motion was opposed by unsecured GM bondholders, non-UAW unions, and potential tort litigants who argued that the plan was unnecessarily quick and failed to account for their interest in the existing GM. Likening the restructuring plan to preventing the "death of the patient on the operating table," Gerber said: As nobody can seriously dispute, the only alternative to an immediate sale is liquidation - a disastrous result for GM's creditors, its employees, the suppliers who depend on GM for their own existence, and the communities in which GM operates. In the event of a liquidation, creditors now trying to increase their incremental recoveries would get nothing.The sale is expected to be completed by Friday, ahead of a July 10 financing deadline set by the Treasury. Berger said that the deadline, which conditioned continued access to $33.3 billion in debtor in possession financing on approval of the restructuring plan, meant that there was not sufficient funding for extended Chapter 11 litigation, and would have forced the liquidation of GM's assets. GM initially filed for Chapter 11 bankruptcy protection on June 1, asking the court to approve measures that would provide for a smooth transition to the "New GM," including a request for the US and Canadian governments to back existing warranties. The other members of Detroit's "Big Three" automakers have also faced financial troubles recently. Chrysler Group filed for bankruptcy protection in April after failing to negotiate the return of $6.9 billion in debt for $2 billion in cash with secured debt holders. Earlier this month, Judge Arthur Gonzales approved the sale of most of the assets currently held by Chrysler to Italian automaker Fiat S.p.A.. Ford Motor Company is seeking to regain lost market share while its domestic rivals are involved in bankruptcy proceedings.

Full post as published by JURIST - The Paper Chase on July 06, 2009 (boomark / email).