GM Seeks Court Approval to Become ‘New’ Company
June 30, 2009 - 7:01 PMGeneral Motors' bid to sell its "good" parts into a new company and emerge from bankruptcy protection began Tuesday as hundreds of lawyers converged on a Manhattan courthouse.
GM, whose June 1 filing for bankruptcy protection was the fourth-largest in U.S. history, is hoping to avoid a lengthy sale hearing that could drag out the process and postpone its emergence from Chapter 11. Last month, objections from a group of bondholders and others dragged out rival Chrysler LLC's sale hearing for three days.
On Tuesday, GM CEO Fritz Henderson was questioned for several hours by attorneys for the various parties challenging the sale, including bondholders, consumer groups and unions.
Despite U.S. Judge Robert Gerber's urging for the attorneys to keep their arguments concise and to avoid redundancies among their questioning, Tuesday's hearing dragged on as a parade of lawyers made their way up to the podium to question Henderson.
After the hearing, which started more than an hour late, stretched into mid-afternoon without a lunch break, Gerber chastised the attorneys for taking too much time and not being prepared enough.
"I think people have forgot why we're here and what we have to accomplish," Gerber said sharply. "I'm not going to deny anybody due process, but I expect the questioning to be more focused."
When asked about the current condition of GM, Henderson testified that the automaker's June sales were "slightly better than expected" excluding fleet sales, which he partly attributed to the company's progress toward an exit from Chapter 11.
Under a government-backed deal, General Motors Corp. will sell most of its assets to a newly created company, 60 percent owned by the U.S. government. The Canadian government will get a 12.5 percent stake while the United Auto Workers union will take a 17.5 percent share to fund its health care obligations. Unsecured bondholders receive the remaining 10 percent.
Existing GM shareholders are expected to be wiped out.
The remaining pieces of the company, including some closed plants, will become the "Old GM" and be liquidated.
GM hopes to emerge as a leaner company, less burdened by debt and labor costs as it faces a severe recession that has sapped car and truck sales. Automakers, which are due to report June U.S. sales on Wednesday, have seen sales fall 37 percent over the first five months of the year.
Lawyers, media and other spectators, along with a handful of people who claim they were injured as a result of allegedly defective GM vehicles, gathered outside the U.S. Bankruptcy Court for the Southern District of New York hours before the hearing's scheduled start Tuesday in a line that wrapped around the building.
Consumer groups and several individuals with product-related liability claims against the company are objecting to the sale because people with pending product-related liability claims against GM will be forced to seek compensation from "Old GM," the collection of mostly unprofitable assets leftover from the sale where there will likely be nothing left to pay their claims.
GM late last week agreed to take on responsibility for future legal claims related to vehicles made by the old company. That means that consumers who claim they were injured by a defective GM vehicle made before the sale will be able to sue the new company for damages.
The concession originally applied to consumers hurt in incidents occurring after the sale goes through. But Connecticut Attorney General Richard Blumenthal said Monday that GM has expanded the timeframe to assume responsibility for injuries linked to defective vehicles from the June 1 date of its bankruptcy filing.
If a person has a pending claim against the automaker for injuries sustained prior to June 1, or hasn't filed suit yet for a past incident, they still will have to seek damages against the old company.
Early on in the hearing, Mark Salzberg, an attorney for a group of bondholders, questioned why GM would opt for a sale plan instead of a restructuring plan, charging that the automaker took that route to make it harder for its creditors to negotiate with the company.
But Harvey Miller, an attorney from GM, questioned the validity of the bondholder group's challenge, noting that it only has three members, one of which bought his bonds for just 2 cents on the dollar, while the other two spent no more than 20 cents on the dollar for theirs.
Besides the bondholders, a trio of labor unions who claim that their retirees stand to lose health care benefits are also trying to block the sale. Unlike the UAW, which brokered a deal for a stake in the company, those unions say they won't have anything to pay for retiree health care.
Henderson testified Tuesday that retiree benefits for the three unions cost GM about $26 million a month.
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