Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.
By Daniel Gill
General Motors’ bankrupt predecessor and hundreds of lenders embroiled in a $1.5 billion lawsuit received some settlement guidelines from a New York bankruptcy court ( Motors Liquidation Co. v. JPMorgan Chase Bank, N.A. (In re Motors Liquidation Co.) , 2017 BL 339490, Bankr. S.D.N.Y., Chapter 11 Case No. 09-50026 (MG) (Jointly Administered) Case No. 09-00504 (MG), 9/26/17 ).
The Sept. 26 205-page opinion by Judge Martin Glenn of the U.S. Bankruptcy Court for the Southern District of New York resolves disputes involving about 40 assets associated with the automaker’s plants, including whether they are fixtures subject to the defendants’ valid security interest and their valuations.
But because there are more than 200,000 such disputed assets subject to the lawsuit, Glenn’s opinion was meant to serve as a template for the parties to settle the massive litigation.
The litigation arises from a $1.5 billion term loan “Old GM” borrowed from a group of large lenders, including JP Morgan Chase, Credit Suisse, Cayman Islands Branch and Barclays Bank PLC. In all, there are over 500 sophisticated entity lenders. The loan was secured by substantially all of GM’s assets.
Because of a big blunder, in October 2008 the lenders accidentally recorded a UCC-3 termination statement effectively ending the perfection of their security interests. However, because the lenders had “Fixture Filings” in 26 counties where certain assets were located, the lenders claim to maintain a security interest in those assets which are fixtures.
GM still owed more than $1.4 billion on the term loan when it filed for Chapter 11 relief on June 1, 2009. GM obtained substantial debtor-in-possession financing in an order approved by the bankruptcy court. That order also authorized Old GM to repay the term loan, which it did.
In the bankruptcy, the debtor quickly sold its operating assets to “New GM,” leaving Old GM to wind up its estate.
The Official Committee of Unsecured Creditors sued the lenders to recover the repayment of the term loan, on grounds that they received more than the value of their secured collateral. The lawsuit is currently being prosecuted by a litigating trust formed for that purpose.
There are more than 200,000 assets at the center of the dispute. These assets include machinery, conveyors, robots and all manner of equipment associated with GM’s manufacturing plants.
In order to be resolved, it must be determined which assets are fixtures and subject to the lenders’ security interests, and the value of each fixture. The plaintiffs seek to recover whatever the lenders received in excess of those values.
“It is impractical, to say the least, to litigate issues with respect to each of the over 200,000 disputed assets,” Glenn said. “Hopefully, with the benefit of this opinion, the parties will be able to resolve the balance of their dispute through settlement,” he said.
The opinion goes through deep analysis of the elements for determining whether an asset is a fixture, and how it should be valued. Ultimately the court utilized a different calculus for different types of assets, like those that were sold to New GM and those that weren’t.
The defendant lenders were represented by Wachtell, Lipton, Rosen & Katz, New York. Binder & Schwartz LLP represented plaintiff Motors Liquidation Company avoidance action trust.
To contact the reporter on this story: Daniel Gill in Washington at email@example.com
To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com
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