GM Faces Key Bankruptcy Hearing Tuesday

June 29, 2009
Objections remain over dealer network.

General Motors faces a key bankruptcy hearing Tuesday in which it will present a plan to sell off most of its assets to a new company unburdened by its old debts and supported by billions of dollars in government loans. Judge Robert Gerber has so far ruled in GM's favor on every motion placed before the court since the beleaguered automaker sought bankruptcy protection on June 1, and Chrysler's swift emergence from bankruptcy set a precedent for a speedy process.

"We hope to launch the new company as soon as possible after the sale is approved," said GM spokeswoman Julie Gibson, who declined to speculate on how long it would take for the new company to emerge.

GM managed to overcome a major hurdle just days before the hearing by agreeing to accept liability for past product defects amid mounting political pressure.

The only significant objection remaining comes from a host of dealers the Detroit giant plans to eliminate from its network.

GM is expected to reach a deal with the bulk of the dealers and the remaining objections will probably be dismissed by the judge, said John Pottow, who specializes in bankruptcy law at the University of Michigan Law School. "The hearing won't take more than a day or two," Pottow speculated. "Then, the judge will decide whether selling the assets [to a new company] is in the best interest of creditors and he's going to say yes."

Once the judge approves the asset sale, it will take several days or possibly a few weeks to be completed, Pottow told AFP.

The company was able to move through the process swiftly because it spent months preparing for the bankruptcy process and reaching agreements with its main union and most of its creditors. But the aid and influence of President Barack Obama's administration cannot be underestimated, Pottow said.

GM gained approval on Thursday to tap into the second half of $30 billion in government financing, keeping the rapid restructuring plan on track. The funds, from the U.S. and Canadian governments, will allow the biggest U.S. automaker to pay its employees and suppliers and other expenses under the exit plan.

The U.S. government would own 60.8% of the capital for its contribution under the plan and Canada would have 11.7%, while a United Auto Workers trust fund would hold 17.5%.

Creditors holding GM bonds would swap $27.1 billion in debt for a 10% stake and warrants allowing them to buy an additional 15% stake, officials said.

Sources familiar with the case said that GM appeared to be on track for an exit from bankruptcy protection under the new scheme by mid-July.

Copyright Agence France-Presse, 2009

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