General Motors Saved From Pre-Bankruptcy Ignition Lawsuits

by Cameron Aubernon

Published: April 16th, 2015

general motors saved from pre bankruptcy ignition lawsuits

Per a bankruptcy court ruling Wednesday, General Motors won’t be on the hook for pre-bankruptcy claims linked to the February 2014 ignition recall.

Reuters reports U.S. Bankruptcy Court Judge Robert Gerber ruled that plaintiffs seeking damages from GM involving claims made prior to the automaker’s 2009 exit from bankruptcy would have to sue “Old GM” for said damages. Though the claims come to $32 billion, Old GM’s assets in October 2014 totaled around $9.25 billion, a recovery of 29 cents on the dollar.

Gerber added that economic-loss plaintiffs could bring their claims against “New GM” based on the automaker’s behavior since leaving bankruptcy, and would certify the case for direct review by the 2nd U.S. Circuit Court of Appeals. He also said there were due process failures involved in GM’s exit, but that those failures weren’t enough to become violation-level issues due to lack of evidence by plaintiffs demonstrating that they were denied their day in court because they did not receive notice in time.

#BankruptcyProtection #CourtRulings #GeneralMotors #Lawsuits #NewGM #OldGM #ProductRecalls #RobertGerber #U.S.BankruptcyCourt

Cameron Aubernon

Seattle-based writer, blogger, and photographer for many a publication. Born in Louisville. Raised in Kansas. Where I lay my head is home.

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VenomV12 on Apr 16, 2015

If you despised GM because they were bailed out before, this sure won't go a long way towards helping change that opinion of them. You can argue the legality of this and whether you think it was right or wrong, but what is important is public perception and how that will affect sales.

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Whittaker on Apr 16, 2015

For those who are claiming the bankruptcy was "normal" please explain how it is normal for new GM to be allowed to lessen their taxes by claiming the losses of old GM as their own. Aren't they different companies? Since when can one company avoid taxes by writing off the losses of a different company. The fact is, the judge is allowing new GM to claim the assets(tax write-offs) that strictly belong to old GM. These assets weren't purchased. They were awarded to new GM by the court and it came out of all of our pockets through taxes not paid by new GM. Whether or not you agree with the logic behind the judge's decisions, they were anything but normal. It was political contortion masquerading as law.

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- Pch101 on Apr 17, 2015
  
  You need to do your homework. The tax carryforward decision has nothing to do with the bankruptcy. It reduced the cost of the bailout. It came at the behest the US Treasury.
  
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- Whittaker on Apr 17, 2015
  
  @Pch101 Whether the judge or the IRS decided to give new GM the enormous tax break it was still a political decision by an arm of the federal government. It wasn't normal bankruptcy conduct or normal IRS conduct. So people should stop citing the law and "normal" procedure. It was the exact opposite of normal. Admit it. It won't hurt as badly as you fear. "General Motors Co. will drive away from its U.S.-government-financed restructuring with a final gift in its trunk: a tax break that could be worth as much as $45 billion." "The tax benefit stems from so-called tax-loss carry-forwards and other provisions, which allow companies to use losses in prior years and costs related to pensions and other expenses to shield profits from U.S. taxes for up to 20 years. In GM's case, the losses stem from years prior to when GM entered bankruptcy." "The losses were incurred by "Old GM," the company that remained in bankruptcy after the current "New GM" resulted from the reorganization last June." http://www.wsj.com/articles/SB10001424052748704462704575590642149103202
  
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- Pch101 on Apr 17, 2015
  
  @Whittaker Your response makes it clear that you don't get it. No one is disputing that GM took tax carryforwards, so posting an article that reiterates that point proves nothing. The bankruptcy process was a Chapter 11 with a 363 sale. All perfectly normal. Contrary to your belief, it is possible for companies to carryforward losses from prior to the 11 filing. However, it would not have ordinarily been possible in GM's case because a party took more than half of GM's stock (in this case, the UST) that it was intending to liquidate. So the UST decided to carve out an exception for deals involving the federal government. Had the Treasury not done that, GM's stock would have been worth less money. Since selling GM's stock was the key to minimizing the loss to the taxpayer, it behooved the UST to do what it could to make the stock more valuable. Hence, the carryforwards put more money back in our pockets, at least over the short- to medium term. The carryforwards were not a result of GM filing BK, but of the government putting up a bunch of money in the form of stock and the government endeavoring to get more of it back. This was done for our benefit.
  
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- Whittaker on Apr 17, 2015
  
  @Pch101 It is a fact that GM got special treatment in the bankruptcy and the bailout. That is not in dispute by anyone that knows what they are talking about. You can argue that the special treatment was needed for the good of the country but that would be an opinion. We can't know what would have happened if GM had been treated as a normal failed business because that is a hypothetical. You are entitled to your opinion. You are not entitled to keep claiming as fact that the GM failure was handled just like any other business failure by the US Government which includes the judge, the Congress, the President and the IRS. The US Government decided that GM had to continue mostly intact and the various branches of the Govt twisted law and policy to make it happen.
  
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CoastieLenn on Apr 17, 2015

I always associated the term "bankruptcy" as a huge black smudge with long lasting side effects for any individual that claims it. How exactly has this "bankruptcy" had any long-term ill effects on GM? I know that these proceedings were undertaken so that the company could be bailed out (on surface value a terrible idea), but what's punitive side of this? Sure, GM had to pay back the Government a percentage of what it actually cost us taxpayers, but what's the downfall here? What actions or penalties have been put in place that ensure that GM learns from it's mistakes, so to speak? Clearly the company wouldn't have needed a bailout or filed for bankruptcy if it were not being mismanaged. What's to stop us (being the taxpayer that may or may-not want to even be supporting this company) from future gross negligence leading to yet another bail out? Obviously our leaders feel that if GM fails, the country won't manage to pick up the peices so it seems that this could easily happen yet again. Then what?

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- ClientNo9 on Apr 17, 2015
  
  You guys are getting confused. Put yourself in the shoes of old GM. You own a house, a car, maybe some rental property, etc. Better yet, let's say you own a McDonald's franchise. You go bankrupt and everything has to be sold to pay creditors. Does the guy who buys your car have to debrand it? Does the guy who buys your restaurant have to take down the McDonald's sign and call it "Joe's"? Should the guy who buys your house have to tear it down? Of course not. That McDonald's name and that Toyota emblem have value. Without the McDonald's name, that restaurant might be worth $50,000, with the name it's worth a million. You actually screw creditors more if you aren't allowed to purchase the brands because they would recover far far less.
  
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- Pch101 on Apr 17, 2015
  
  Bankruptcy was created to provide an alternative to debtors prisons. It isn't intended to be punitive.
  
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- CoastieLenn on Apr 17, 2015
  
  @Pch101 Right- but what I'm specifically wondering in a muddy sort of way is this: Now that GM essentially owes it's "life" to the American government and to us tax payers, what (if anything) has been put in place to ensure that the efforts and dollars of those who worked to support it, despite it's best efforts- have a *lasting* value beyond the arguable effects of it's permitted colapse. I understand that there are laws and protections built into big business that many of us don't understand, but there's also inherent value in the viewpoints and mindsets of those of us outside the financial/political realm that are not clouded or otherwise blinded by the company itself and the politics behind it. SIMPLE MINDS WANT TO KNOW. If I claim bankruptcy, I (afaik) lose anything that I still owe money on and will lose nearly everything that I don't. What's the downside for GM on this, especially since beyond the writing on the legal documents, "Old GM" is no different than "New GM". @ClientNo9- I know what you're saying but in the case of GM, it seems that all they did was change... well... nothing. General Motors is General Motors- name, staff, building, logo, colors, cubicles, products- everything. I could see your point a whole lot clearer if the business end of "Old GM" weren't the same as the "New GM", but they aren't. It's exactly the same company in *real life*. There's seemingly nothing to stop this from happening again and that's should be a significant worry.
  
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- Pch101 on Apr 17, 2015
  
  @CoastieLenn Aside from your desire to complain, I have no idea what you want. We bailed out GM as part of a larger effort to avoid a depression that would have made the 1930s look like a picnic. GM was not bailed out because we love the Ren Cen or Malibus or due to nostalgia. If GM failed this afternoon, it would have still been worth it. The world was on the verge of collapse in 2009, and keeping GM afloat was one of many things that were done in order to keep things from imploding completely. I have no love for GM cars personally, and I wouldn't care less if it liquidated just so long as the timing wasn't as bad as it would have been six years ago.
  
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ClientNo9 on Apr 17, 2015

The untold story of the bankruptcy is that people in the defense department were also lobbying for a bailout. If we should have another world war, they were afraid of losing GM's production capacity. So don't complain too much. Keeping GM alive also supports our national defense.

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