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Bankruptcy judge approves GM sale
New GM is clear for take-off after US judge approves transfer of assets
6 Jul 2009
GENERAL Motors is free from the threat of liquidation after a New York judge approved the company’s bankruptcy sale on Sunday – just five days before a government deadline that threatened billions of dollars of state aid.
GM promptly announced that its profitable assets – including overseas subsidiaries such as GM Holden – would be sold to a new company, NGMCO Inc (‘New GM’), which will later be re-named General Motors Company.
US bankruptcy court judge Robert Gerber’s ruling clears the way for GM to potentially emerge quickly from bankruptcy protection under government ownership.
Judge Gerber said the sale would “prevent the death of the patient on the operating table”.
“If GM liquidates, there will not only be nothing for stockholders there will be nothing for unsecured creditors,” Judge Gerber said in a 95-page ruling resulting from a three-day hearing last week.
“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.” New GM will be free of many of the old company’s costs and liabilities – including, controversially, consumer claims relating to incidents that occurred before GM went into bankruptcy protection on June 1.
GM will also leave the bankruptcy court with significantly reduced debt and labour costs, as well as fewer brands and dealerships, as outlined in recent government presentations.
New GM will be able to operate what are regarded as the best parts of the old company, including its Chevrolet and Cadillac brands, with a less-expensive workforce and a smaller dealer network.
The ‘old GM’, which includes unpopular brands and unneeded factories and liabilities, will remain behind in bankruptcy court to be liquidated. These assets include Hummer, Saturn and Saab.
GM president and CEO Fritz Henderson.
GM president and CEO Fritz Henderson welcomed the move, saying a healthy US auto industry remained vital to the global economy.
“We deeply appreciate the support the US, Canadian and Ontario governments and taxpayers have given GM, and the sacrifices that have been made by so many,” he said.
“This has been an especially challenging period, and we've had to make very difficult decisions to address some of the issues that have plagued our business for decades. Now it's our responsibility to fix this business and place the company on a clear path to success without delay." The US treasury department has vowed to cut off GM’s vital operating funds unless the asset sale to New GM goes through by July 10.
Treasury has agreed to take a 60.8 per cent equity in the new company in return for $60 billion in financing, most of which has already been provided. The remaining stake in new GM will be owned by the United Auto Workers (17.5 per cent), the Canadian government (11.7 per cent) and GM bondholders (10 per cent).
Associated Press reports that several consumer groups objected to provisions in the sale that free the new company from liability for consumer claims related to incidents that occurred before GM went into bankruptcy protection.
That means that people injured by a defective GM product in connection with an incident that occurred before June 1 would have to seek compensation from the old GM, where they would be less likely to receive compensation.
The Obama administration has said it does not plan to interfere with the day-to-day running of New GM, but has been involved in the selection of the 13-member board of directors, including the appointment of former AT&T boss Ed Whitacre as chairman.
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