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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: 2) by butthurt on Monday December 19 2016, @03:14PM
> So they lose their patents, copyrights & trademarks that are older that 7 years?
In bankruptcy proceedings, assets can be sold to satisfy creditors. Patents and copyrights can be sold. So can trademarks, although in the United States a trademark can't be sold without the associated business (loosely speaking).
https://en.wikipedia.org/wiki/Trademark#Sale.2C_transfer_and_licensing [wikipedia.org]
> What about any claims to longevity and/or reliability?
This is General Motors we're discussing.
(Score: 5, Interesting) by AthanasiusKircher on Monday December 19 2016, @03:51PM
In bankruptcy proceedings, assets can be sold to satisfy creditors. Patents and copyrights can be sold.
While this is true, I think it misses the point GP was making, which is that IF a company wants to declare that bankruptcy turns itself into a completely new company that absolves it from legal liability, it should also AUTOMATICALLY lose legal protections previously granted to it under the law, such as patents, copyrights, etc.
Not merely "selling them" -- Rendering them legally void. Of course, some of them MAY be sold to satisfy creditors during the bankruptcy proceedings, but once creditors have been satisfied, any remaining legal protections of IP, etc. associated with the old company should be rendered null and void.
Or, at least, that would be a legally consistent position. One cannot claim legal immunity from previous actions because of a supposed "change of identity" while simultaneously continuing to benefit legally from the previous identity's actions. Either your new legal identity is separate, or there is some continuity. Same thing should go for any and all contracts entered into by the previous company -- did GM get a tax break from states it has plants in? Null and void. Time to renegotiate. Etc.
[Note: of could this is nonsense and would lead to legal chaos with any bankruptcy of a large company. But *if* we were to accept GM's premise, this is the logical consequence.]
(Score: 0) by Anonymous Coward on Monday December 19 2016, @06:38PM
OP here. Thank you for articulating it much better than I ever could.
(Score: 2) by butthurt on Monday December 19 2016, @08:22PM
One cannot claim legal immunity from previous actions because of a supposed "change of identity" while simultaneously continuing to benefit legally from the previous identity's actions.
The type of bankruptcy that this company went through doesn't require the business to be ended:
In enacting Chapter 11 of the Bankruptcy code, Congress concluded that it is sometimes the case that the value of a business is greater if sold or reorganized as a going concern than the value of the sum of its parts if the business's assets were to be sold off individually. It follows that it may be more economically efficient to allow a troubled company to continue running, cancel some of its debts, and give ownership of the newly reorganized company to the creditors whose debts were canceled.
-- https://en.wikipedia.org/wiki/Chapter_11,_Title_11,_United_States_Code#Rationale [wikipedia.org]
If ownership in the new General Motors Company was indeed given to the former creditors of the old General Motors Corporation, as partial compensation for what they were owed, the claim of a "new identity" is, in my opinion, justified.
The salient thing, as mentioned at the end of the article, is that the defective ignition switches weren't disclosed to the bankruptcy court, so victims of failed switches (or their heirs) weren't included as creditors in the bankruptcy. The "new" company continued the cover-up; for it to take full—rather than partial—responsibility for the flaw might appear to be a just punishment for a continuing criminal enterprise.
(Score: 2) by AthanasiusKircher on Monday December 19 2016, @08:42PM
If ownership in the new General Motors Company was indeed given to the former creditors of the old General Motors Corporation, as partial compensation for what they were owed, the claim of a "new identity" is, in my opinion, justified.
I'd agree with you, except in this particular case such a position is pure sophistry. From TFA:
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.
GM is arguing that it became a new company on July 10, 2009, the day a federal court approved the sale of assets owned by General Motors Corporation to General Motors Company.
If this were a "normal" bankruptcy proceeding, of course you'd have a point. But this was no normal bankruptcy proceeding where an outside creditor received assets from a failed corporation. This is a corporation that effectively simply renamed ITSELF in order to declare bankruptcy.
(Score: 2) by butthurt on Monday December 19 2016, @10:10PM
The article oversimplifies what happened. It glosses over the difference between Chapter 7 bankruptcy, in which a business's assets are sold off to satisfy creditors, and Chapter 11 bankruptcy, in which a business continues, possibly under the ownership of its creditors.
https://en.wikipedia.org/wiki/Chapter_7_bankruptcy [wikipedia.org]
https://en.wikipedia.org/wiki/Chapter_11_bankruptcy [wikipedia.org]
[The "new GM"] had been formed by the United States government with a 60% stake, the federal government of Canada and provincial government of Ontario with a 12% stake, the United Auto Workers and Canadian Auto Workers unions with a 17.5% stake, and the unsecured bondholders of General Motors with a 10% stake. "Old GM" was renamed Motors Liquidation Company.
-- https://en.wikipedia.org/wiki/MTLQQ#Sale_of_good_assets_to_New_GM [wikipedia.org]
Motors Liquidation Company became (emphasis mine)
[...] four trusts; the first to settle the claims of unsecured creditors (OTC Pink: MTLQU), the second to handle environmental response for MLC's remaining assets, a third to handle present and future asbestos-related claims, and a fourth for litigation claims.
(ibid.) The shareholders in the original GM became shareholders in Motors Liquidation Company and, it appears, lost at least most of their investments--"Ticker Delisted" says Yahoo! Finance. [bloomberg.com]
The "new GM" is owned by some of those to whom it owed money, not by the previous shareholders. The "new" company was given by the bankruptcy court to creditors as partial compensation. The court, if I'm not mistaken, had the power to nullify the company's liabilities, turn it over to its creditors, and have it remain in business under their ownership. The complication is that there was a cover-up so the court didn't know about the ignition switches. Then under the new owners, management continued to hide the problem.
(Score: 2) by AthanasiusKircher on Wednesday December 21 2016, @04:30PM
Just to be clear, I understand the difference between Chapter 7 and Chapter 11 bankruptcy. I was specifically responding to your assertions about assets being sold off to creditors and protecting them from liability. The issue here is contained later in one of the quotations you give -- 72% of the "creditors" here were not actually creditors, but the governments of the U.S. and Canada. That potentially brings up different sorts of issues than a "normal" Chapter 11 bankruptcy where a reorganization takes place under management of REAL creditors, as opposed to government bailouts.
Unless you're going to argue that the governments of the U.S. and Canada (as majority stakeholders in this bailout) have actually been running GM for the past several years -- which they haven't -- I take the (admittedly oversimplified) point of TFA that GM basically renamed itself.
(Score: 2) by butthurt on Wednesday December 21 2016, @07:59PM
[...] 72% of the "creditors" here were not actually creditors, but the governments of the U.S. and Canada. That potentially brings up different sorts of issues than a "normal" Chapter 11 bankruptcy where a reorganization takes place under management of REAL creditors, as opposed to government bailouts.
When a government makes a loan, doesn't that make it a real creditor? The U.S. government made a loan to the company in December 2008; the bankruptcy filing happened the following June:
GM filed for Chapter 11 reorganization in the Manhattan New York federal bankruptcy court on June 1, 2009 [...]
[...] in December 2008 the Bush administration provided a "bridge loan" to General Motors with the requirement of a revised business plan.
-- https://en.wikipedia.org/wiki/GM_bailout [wikipedia.org]
An article on the date of the filing said:
The Obama administration will commit another $30 billion on top of the $19.4 billion it has already given GM to cover its losses and fund its operations.[...]
The governments of Canada and Ontario will lend $9.5 billion and receive 12% of the equity in the new GM.
-- http://money.cnn.com/2009/05/31/news/companies/gm_bankruptcy_looms/index.htm?postversion=2009053112 [cnn.com]
[...] the governments of the U.S. and Canada (as majority stakeholders in this bailout) [haven't] [...] actually been running GM for the past several years [...]
Stock-holders ordinarily select the board of directors of a company. Beyond that, an audit of the company's activities to make sure they were lawful and/or replacement of upper management could have been required as a condition of the bail-out. I think you're acknowledging that the company had new owners but saying it had the same management. I don't dispute that.