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posted by Fnord666 on Monday December 19 2016, @12:57PM   Printer-friendly
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.


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  • (Score: 2) by AthanasiusKircher on Monday December 19 2016, @08:42PM

    by AthanasiusKircher (5291) on Monday December 19 2016, @08:42PM (#443316) Journal

    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.

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  • (Score: 2) by butthurt on Monday December 19 2016, @10:10PM

    by butthurt (6141) on Monday December 19 2016, @10:10PM (#443388) Journal

    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

      by AthanasiusKircher (5291) on Wednesday December 21 2016, @04:30PM (#444333) Journal

      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

        by butthurt (6141) on Wednesday December 21 2016, @07:59PM (#444420) Journal

        [...] 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.