As the General Motors Chapter 11 bankruptcy wends its way through the court, an interesting issue (actually two issues) may have arisen. One of the groups opposing the GM-government plan for which court approval is being sought, namely the GM bond holders, has raised an interesting point. Both those bond holders and the Automobile Workers Union are GM’s unsecured creditors, and therefore under the customary bankruptcy rules should be treated alike. But the way GM and the government structured the proposed bankruptcy plan, the bondholders who are owed $27 billion, are going to receive stock of GM, plus warrants said to be worth somewhere between $7.4 and $9.8 billion (as opposed to a $27 billion bonded debt). As such, this could be one of the moments in which you decide to get in touch with someone like these bankruptcy lawyers in Harrisburg PA to explain the situation as best as possible, as if you are at risk of going bankrupt, you need to know what your next options are. On the other hand, the plan calls for a sale of the “good” parts of GM (holding its valuable assets) to a new company owned by the U.S. and Canadian governments, as well as the UAW which will get a 17.5% stake in it. So the bond holders are rightly angry at the disparity of treatment: they get promises of pie in the sky (an assumption that the stock being offered to them will be worth something), whereas the UAW which is an unsecured creditor the same as they, will get a share in the old GM’s valuable assets.
So here is a question for you to reflect on: is this arrangement a government taking of the bond holders’ interest?
The second item has to do with tort law. Once GM is discharged in bankruptcy, that means that any of its obligations incurred before then are no longer subject to judicial redress. But what if the cars manufactured and sold before the discharge contain defects and/or cause injuries? The buyers of those will not be able to sue GM or any successor entities, will they? So what happens to their causes of action? If you are bankrupt and would like some help with personal finance and you are interested in a Registered Education Savings Plan, then you may be interested in companies such as Wealth Simple.
Which gives rise to an interesting non-legal question: would you want to buy a GM car as to which you can’t get legal redress if it prove to be defective? We will have to wait on that one and see how it turns out. In the meantime, if you want the whole story read David McLaughlin, GM Recovery Plan Rests With Judge, Wall St. Jour., July 3, 2009, at p. B2.