A federal judge late on Sunday approved a plan by General Motors to sell its best assets to a new, government-backed company, a crucial step for the automaker to restructure and complete its trip through bankruptcy court.
AP
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The decision by the judge, Robert E. Gerber, of Federal Bankruptcy Court in Manhattan, came after three days of hearings to address the 850 objections to the restructuring plan and after he received a revised sale order from General Motors' lawyers.
In his 95-page opinion, Judge Gerber wrote that he agreed with General Motors' main contention: that the asset sale was needed to preserve its business, in the face of steep losses and government financing that is slated to run out by the end of the week.
“Bankruptcy courts have the power to authorize sales of assets at a time when there still is value to preserve — to prevent the death of the patient on the operating table,” Judge Gerber wrote.
With the approval of the plan, General Motors and the government are seeking to close the sale by Tuesday, according to people briefed on the matter. The government, which is financing the reorganization, had given General Motors until Friday to win approval for the sale or risk losing its bankruptcy financing. Harry J. Wilson, a member of the Obama administration’s auto task force, testified on Wednesday that the administration did not intend to extend the loan by even one day beyond the deadline.
Judge Gerber’s approval marks yet another victory for the Obama administration, which has sought an enormous restructuring of the American auto industry in an unusually short time span. Last month, a new Chrysler emerged from bankruptcy in just 42 days, despite a challenge by three Indiana state funds that went as high as the Supreme Court of the United States.
If completed by Friday, General Motors would be near the end of an extraordinarily quick trip through the bankruptcy courts, turning itself into smaller company with fewer brands and a new focus on fuel efficient cars.
Under the terms of the revised deal, General Motors would sell its most desirable assets, including the Chevrolet and Cadillac brands, to a new company owned largely by the American and Canadian governments and a health care trust for the United Automobile Workers union. The Obama administration anticipates taking the company, which will still bear the General Motors name, public next year.
General Motors' chief executive of three months, Fritz Henderson, is expected to hold that position in the new company. The Obama administration has already designated several directors for the new General Motors, including Edward Whitacre, AT&T’s former chief executive, as chairman. The company will be represented on an interim basis by Cadwalader, Wickersham & Taft, the law firm that advised the auto task force.
Old General Motors will stay in bankruptcy, overseen by the company’s current chief restructuring officer, Albert A. Koch of the turnaround firm AlixPartners. The Obama administration has agreed to lend the old company $1.175 billion to wind down the estate and settle claims.
Along the way, the company has shed another 21,000 union workers and closed 12 to 20 factories. In addition, 40 percent of General Motors' 6,000 dealers will close.
It is possible that creditors who objected to the terms could file an appeal. Lawyers for several opponents argued during the hearings that the General Motors sale stripped them of their rights as creditors. A lawyer representing three dissident bondholders urged Judge Gerber to call what he said was the Obama administration’s bluff on the July 10 deadline.
The lawyer, Michael Richman of Patton Boggs, and others said that while they were not opposed to a sale, they objected to the plan’s structure and said they deserved more compensation for their claims. Mr. Richman’s clients hold $2.3 million of General Motors' $27 billion in bonds, though they assert they represent a wider group of individual bondholders that owns more than $400 million worth of bonds.
The lawyer, Michael Richman of Patton Boggs, and others said that while they were not opposed to a sale, they objected to the plan’s structure and said they deserved more compensation for their claims. Mr. Richman’s clients hold $2.3 million of General Motors' $27 billion in bonds, though they assert they represent a wider group of individual bondholders that owns more than $400 million worth of bonds.
Other groups, including those representing product liability claims and asbestos litigants, also fought against General Motors' plan. Under the terms of the sale, most of those claims would remain with the remnants of General Motors in bankruptcy, meaning they were likely to recover little, if anything.
But General Motors' chief bankruptcy counsel, Harvey R. Miller, said Thursday that none of the 850 objectors to the sale of assets presented a credible alternative. The only other option would be liquidation, a process that he said would benefit no one.
Judge Gerber agreed with that assessment.
“As nobody can seriously dispute, the only alternative to an immediate sale is liquidation — a disastrous result for General Motors' creditors, its employees, the suppliers who depend on General Motors for their own existence, and the communities in which General Motors operates,” he wrote in his opinion. “In the event of a liquidation, creditors now trying to increase their incremental recoveries would get nothing.”