As expected, a federal bankruptcy judge in New York has given approval for General Motors to proceed with its reorganization plan.
Judge Robert E. Gerber issued the order in a 95-page opinion, finding that GM's plan to sell itself was in the best interests of the U.S. auto industry.
"As nobody can seriously dispute, the only alternative to an immediate sale is liquidation, a disastrous result for GM's creditors, its employees, the suppliers who depend on GM for their own existence, and the communities in which GM operates," the opinion said. "In the event of a liquidation, creditors now trying to increase their incremental recoveries would get nothing."
The judge answered some bond holders who balked at their share of the new company, arguing their position as senior lenders entitled them to greater ownership. Also, some dealers targeted for closing raised objections, with the aid of the attorneys generals in their states.
In late June, West Virginia and Ohio were among states filing objections in hopes of blocking the bankruptcy sale of GM.
West Virginia Attorney General Darrell McGraw objected to the proposed termination of GM dealerships in West Virginia. In his objection, McGraw asked the bankruptcy court to prevent the sale of GMs assets without going through the Chapter 11 process. The laws governing Chapter 11 reorganization provides substantial rights to creditors, including dealers whose franchises are in jeopardy, he said.McGraw said West Virginia consumers also will suffer because they will have to drive further to service their vehicles under the manufacturers warranty. The filing also objects to procedures for termination proposed by GM, which McGraw says are in violation of West Virginia law that protects new car dealers from being arbitrarily terminated.
Ohio Attorney General Richard Cordray filed four objections to the pending GM sale, also acting on behalf of the State of Ohio and Ohio consumers and dealerships.
"While we hope that in the end GM will emerge stronger and more resilient," said Cordray in his filing. "We cannot let big business bankruptcies in federal court trample over state law. The objections filed today seek to preserve the integrity of a system designed to protect Ohioans."
The Attorney General's limited objections request that the Court enter an order denying the sale motion until there is clarification:
• As to whether new GM will be assuming worker comp liabilities of old GM
• Of preserving the Ohio Department of Taxation's right of setoff against any tax refunds owed by GM
• Of entitled protection for dealerships under state dealer law
A number of other states also filed objections, seeking to block the sale. Gerber ruled that it was unreasonable to expect GM to retain all 6,000 of its dealers as it attempted to get back on its feet. The judge noted that GM was granting a 17 month transition period for dealers, which he said was fair.
As of the beginning of the second quarter of 2009. GM's assets totaled 82 billion, but the company reported liabilities of $172 billion. GM filed for bankruptcy protection June 1.
