While a bankruptcy judge agreed to a lightning-quick sale of Lehman Brothers assets last fall, he did so only after a parade of government regulators insisted that a failure to sell could undermine the world financial system. That claim would be a stretch for G.M., whose assets are factories, cars and other tangible goods that, unlike Lehman’s financial contracts, have value that is unlikely to evaporate quickly.
“It’s a very different kind of business than Lehman,” said Howard Seife, head of the bankruptcy and financial restructuring practice at Chadbourne & Parke in New York.
Casting aside the deliberative processes of bankruptcy would undoubtedly lead other companies to argue for the same treatment in the future.
The judge would want to weigh carefully the stakes, given G.M.’s size and its close ties to companies around the world.
Unionized employees and retirees would ask that their contracts be protected, and the Bankruptcy Code has provisions specifically requiring good-faith negotiations before labor agreements can be modified. Such talks could easily take many months.
Bankruptcy cases often drag on far longer than anticipated, slowed by unexpected obstacles to reorganization. The auto parts company Delphi, once a unit of G.M. and now a supplier, has languished in bankruptcy proceedings for four years, twice as long as originally planned, for example.
Separating and selling off G.M.’s more valuable assets, a strategy pursued at troubled banks (usually outside of bankruptcy, it should be noted), would most likely pit the company’s financial advisers against those working for creditors.
“Creditors may think Buick is their premier line, management may think Pontiac is their premier line,” Ms. Mayerson observed. That argument will delay important decisions about the company’s future, she added. “It really isn’t an asset problem at G.M. so much as a management problem.”
Even if a judge went along with the government’s plan to split the company, that judge would want plenty of legal cover. Gathering and presenting evidence that the split-up is the best option would take time.
Typically, companies sell off assets to third parties as part of a reorganization in Chapter 11. Plans for G.M. would go further, selling virtually all the viable parts of the company very quickly to a new one created solely to buy it.
“What’s driving this is the concern that the customer is not going to stand for a three-year bankruptcy,” said a person briefed on the government’s plan who insisted on anonymity because discussions are continuing. “The revenues will just stall out.”
Allowing the automaker to sell off the good assets would essentially sidestep the rest of the bankruptcy process, lawyers said, especially the nettlesome requirement that creditors approve a plan of reorganization. Once blessed, that tactic would be alluring to other troubled companies.
“If you could do this, it’s too cheap a trick — everyone would do it,” said Lynn M. LoPucki, a law professor at the University of California, Los Angeles. “There would be no other kind of bankruptcy remaining.”
Lehman Brothers conducted a sale within days of its bankruptcy filing, holding an auction under Section 363 of the Bankruptcy Code, which the administration’s plan could also use. But in Lehman’s case, an outside buyer, Barclays, bid on the assets, Professor LoPucki said. “Here, there is no buyer,” he said. “G.M. is selling itself to itself. That transaction has no economic reality.”
The transaction could have very real implications, though, for creditors and unionized workers. If union contracts on pensions, employment and benefits remain tied to the old G.M., employees and retirees could be devastated financially.
If the contracts move to the new, good company, the surviving business would look considerably weaker. That creates a political problem that would make a rapid, clean bankruptcy unlikely.
“It’s going to be about the union and the pensions,” said Ms. Mayerson, the bankruptcy lawyer. “And I don’t see any way that this is a quickie bankruptcy. After all, it took them 30 years to get into this mess.”