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from the that's-not-how-reincarnation-works dept.
When a company reorganizes itself through a bankruptcy, is it the same company? And if so, is it liable for alleged wrongdoing committed by the previous version of itself?
These are questions raised by General Motors' efforts to dodge hundreds of lawsuits related to a potentially fatal ignition-switch flaw in millions of its older sedans. After receiving a stinging defeat in a federal appellate court this past summer, the automaker is now making a Hail Mary pass to the U.S. Supreme Court to try to convince judges that it has reincarnated into a seven-year-old car company free of liabilities from its previous life.
With potentially billions of dollars' worth of personal and financial injury claims at stake, the Detroit automaker's lawyers argue that allowing these lawsuits to go through would undermine an important aspect of corporate bankruptcy: giving assurance to the buyers of troubled companies that they aren't also buying a whole bunch of unexpected legal headaches.
But in GM's case there was no outside buyer. It essentially bought itself (with taxpayer money) in the wake of the mortgage-lending crisis that tipped the nation into recession and steered the American auto industry into a ditch.
(Score: 5, Informative) by pTamok on Monday December 19 2016, @02:05PM
Substantially the same process is getting popular/notorious in the UK - know as 'pre-packs'
https://en.wikipedia.org/wiki/Pre-packaged_insolvency [wikipedia.org]
Note the criticisms in that Wikipedia article:
When you have the same directors, using the same assets, to run substantially the same business, but without the debts, I think it is arguable whether it is 'the same' business or not. Perhaps a possibly solution would be to prevent the directors of the old business working for the new business for a reasonable period e.g. 5 years. The problem is, of course, that they are the experts in the running of the business (even if it has just failed), and without them, there could well be worse job losses.
Avoiding product liability by strategic bankruptcy is a well-known tactic in the building trade. Construction companies do not build things - they operate as shells that own smaller companies that are set up individually for each building project. If a building is found to be built incorrectly after completion, what you find is the project company has been wound up, has no assets to speak of, and any guarantees are worthless, and the parent company has no obligations. It happens time and again. There is even law attempting to prevent this practice.
I have no idea what a solution to this gaming of the system might be. Successor companies will obviously do their very best to avoid taking on the liabilities of their failed predecessors. Perhaps a way could be found to 'wipe out' the commercial debt, but leave other obligations in place?
(Score: 2) by tonyPick on Monday December 19 2016, @02:21PM
Aha - that was the term I was looking for - I remember this being a thing around implants & cosmetic surgery a few years ago as well, and reports of this tactic being used to ditch liabilities...
From the daily mail report [dailymail.co.uk] (because I can't find a better link...)
(Score: 0) by Anonymous Coward on Tuesday December 20 2016, @02:36AM
Maybe it's time for extrajudicial punitive actions against said management of such dismissive entities.
(Score: 2) by Nollij on Friday December 23 2016, @07:53PM
In the US, the response to this is called Piercing the corporate veil [wikipedia.org]. It's actually more common than you would think, but not for the reasons you would hope.
Anecdotally: My relative was CEO of a successful company. There were routine claims the company hadn't paid Use tax [wikipedia.org], which is basically sales tax when sales tax itself doesn't apply.
The state department of taxation attempted to pierce the corporate veil and go after him personally on this issue.
(Score: 0) by Anonymous Coward on Monday December 19 2016, @10:10PM
> If a building is found to be built incorrectly after completion, what you find is the project company has been wound up, has no assets to speak of, and any guarantees are worthless, and the parent company has no obligations.
I was told in architecture school that it hasn't always been like this. When the construction-scaffolding/shoring-timbers were removed from middle ages cathedrals and other large buildings, the architect had to stand underneath. If the project spanned more than one generation (common for cathedrals) it might be the designer's grandchild that had to stand underneath the arch or dome. Helps to explain why big buildings from hundreds of years ago are still standing--by and large, the architects didn't have a death wish.
It's somewhat surprising that this isn't part of the ancient common law that forms the basis for present laws.
(Score: 1) by purple_cobra on Tuesday December 20 2016, @01:22PM