The Work

July 6, 2009 5:22 PM

Breaking: Bondholders Give Up GM Fight, Citing Lack of Resources

Posted by Zach Lowe

The Am Law Daily just received an e-mail from Michael Richman of Patton Boggs saying the group of bondholders who oppose the plan to sell General Motors out of bankruptcy will not appeal a judge's ruling Sunday approving that sale. 

With that, there may be no remaining obstacles to the controversial plan to sell most of GM to a consortium backed by the U.S. Treasury, which will take a 60 percent stake in the new company. Richman, as we reported this morning, represents three dissident bondholders who have objected to the plan on several grounds, including that small bondholders will be forced to accept pennies on the dollar while other unsecured creditors will get better deals. The United Auto Workers, for instance, will receive a 17.5 percent stake in the company and ownership of billions in GM notes. 

Richman said the bondholders simply lacked the resources to continue fighting the case. (That is one reason they asked Judge Robert Gerber to appoint an official committee to represent them, since the debtor's estate pays the legal fees for official creditor committees, as we reported two weeks ago.)

Richman makes two other points in his statement. First, he argues that the Chrysler bankruptcy indicates appellate courts will likely show deference to federal bankruptcy judges. (In that case, the U.S. Court of Appeals for the Second Circuit upheld Judge Arthur Gonzalez's order approving the sale of Chrysler over creditor objections.)

Second, and perhaps most interesting for bankruptcy gurus, Richman argues that the sale of GM under section 363 of the bankruptcy code stretches section 363 to a place it wasn't supposed to go. Here's his direct quote: "Our position on appeal would have been that in enacting section 363 as part of Chapter 11, Congress intended that it would only be used for legitimate sales to commercial purchasers, and not for a government-sponsored rescue where the government is the only purchaser."

Bankruptcy experts: Is Richman right?

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