Houston businesses know that the worst kind of disputes can be those that unwind a company from the inside out. Did you know that the General Motors Co. (GM) could face serious turmoil by a lawsuit that puts its creditors against hedge funds over $3 billion? The case has recently moved into business litigation.
According to reports, a trust for creditors of the insolvent part of GM, Motors Liquidation Co., which held notes in a Canadian division of GM, sued the hedge funds. The suit claims that while GM was in the process of filing for bankruptcy, four hedge funds, "saw an eleventh-hour opportunity for profit and pounced."
Specifically sources say that the trust seeks to have a $2.67 billion claim and a $367 million payment, which was negotiated for holders of notes in GM's Nova Scotia unit, canceled or reduced. Allegedly, the hedge funds seek more than triple what the company actually owed them. The settlement amounts had resolved a dispute that the hedge funds had brought concerning an internal claim.
Reports indicate that GM tends to object to the suit and protect the sale order. If a settlement isn't reached, the company feels that the dispute could get messy. The company feels that such a result could affect GM Canada and the creditors.
In the end, the lawsuit seems to allege that GM failed to complete its agreement with the hedge funds until after it filed for bankruptcy. The company required approval from bankruptcy court and never received it.
In the upcoming weeks, it will be interesting to see how this litigation plays out.
Source: Yahoo! Finance, "Lawsuit Could Undo Sale That Created New GM, Company Says," Tiffany Kary, Aug. 7 2012