A New York federal judge may rule imminently on a case that could reverse the General Motors (GM) bailout and send the company back into bankruptcy. On the eve of entering bankruptcy, the company cut a $367 million “lock-up agreement” with several major hedge funds to prevent GM Canada from failing. The agreement ensured that GM could spin-off its liabilities to “old GM,” while using a multi-billion dollar bailout to create a new company.All of that could be reversed if bankruptcy Judge Robert Gerber reopens the process and rules in favor of old GM trustees, who are suing the hedge funds at the center of the lockout agreement.
“In this particular situation, there’s $1.3 billion in liabilities. Those liabilities, which include old GM’s debt and product liabilities that pre-date bankruptcy, are valued at $30 billion, a sum that would wipe out the company’s $34.6 billion cash reserves. Negotiators representing both sides of the case met in New York on Thursday to try to settle the suit through mediation rather than a court order.
Gerber, the federal judge who initially approved the sale with little hesitation, now has the power to reverse the entire auto bailout. He has expressed deep frustration with the company for failing to disclose the deal, leading some to speculate that he may overturn one of President Barack Obama’s signature achievements. “When I approved the sale agreement and entered the sale approval order I mistakenly thought that I was merely saving GM, the supply chain, and about a million jobs. It never once occurred to me, and nobody bothered to disclose, that amongst all of the assigned contracts was this lock-up agreement. “The judge has made it very clear that he is greatly dissatisfied with the process,” that reopening the sale is a possibility.” If Gerber takes that course the company could be forced to return the $30 billion taxpayer bailout that it received through the course of bankruptcy.
The Canadian and American governments played vital roles in the deal and pushed GM to negotiate as quickly as possible.
The Treasury Department, which oversaw the auto bailout, did not return emails for comment. The company is taking the possibility of a negative ruling from Gerber very seriously. GM attorneys filed court documents saying that the lawsuit “could create a chaotic situation for GM Canada.
This is the rule of law and how creditors are treated in the United States legal system.”
Source-washington free beacon, bill mcmorris