A U.S. bankruptcy judge is weighing whether to reverse a deal that benefitted
hedge funds at the expense of Old General Motors' unsecured creditors after
the parties failed to reach a settlement out of court.
The situation could cost New GM up to $918 million or even unwind parts
of the company's bankruptcy restructuring, though the automaker has said the
creditors don't have a case.
A ruling in the automaker's favor would eliminate such an expense and put
a nagging remnant from the 2009 bankruptcy to rest.
U.S. Bankruptcy Judge Robert Gerber is expected to rule soon whether
creditors should get paid instead of several hedge funds involved in the deal.
Bloomberg News reported that Gerber finished hearing arguments in the
case Wednesday.
Creditors have accused the hedge funds, including Elliott Management and
Fortress Investment Group, of settling $1.3 billion in claims against Old GM's
Nova Scotia Finance unit for $367 million shortly after GM filed for
bankruptcy.
The hedge funds say the deal occurred shortly before the June 1, 2009,
filing, meaning it did not have to be approved by the bankruptcy judge.
Motors Liquidation Co. GUC Trust, which is handling GM's bankruptcy
estate, and the hedge funds "participated in a mediation" that "concluded
without the parties reaching a settlement," the parties reported Monday in a
bankruptcy filing.
It's now up to Gerber to determine whether the hedge funds flouted
bankruptcy code by making a deal just before the company filed its historic
government-backed bankruptcy.
An Elliott Management spokesman declined to comment. GM, which said last
year that it believes the claims are "without merit," declined further comment
Wednesday.
The case stems from a deal in which Old GM lent a subsidiary based in
Nova Scotia enough cash to pay off the hedge funds.
Gerber can decide whether to divert cash to unsecured creditors, who got
almost nothing after GM emerged from its Chapter 11 restructuring, or fine the
hedge funds for cutting a deal that excluded other creditors.
