There will be a long line of thousands of creditors clogging the courts in a GM bankruptcy.
Conventional wisdom has General Motors Corporation filing for Chapter 11 bankruptcy in late spring or early summer, emerging from court supervision as a smaller but viable company in as little as two weeks, or two to four months at the outside.
Both of these scenarios are exceedingly optimistic, according to bankruptcy lawyers at the firm of Plunkett Cooney, which potentially could earn huge fees from a GM bankruptcy.
“Bankruptcy may indeed be the last, best option to restructure General Motors because of the multitude of challenges the company faces and its deeply entrenched stakeholders,” said Doug Bernstein, head of Plunkett Cooney’s Banking, Bankruptcy and Creditors’ Rights practice group.
“But it’s unrealistic to expect that the process will go smoothly and quickly. The company is massive, its operations are complex, and it has thousands of potential claimants and interested parties. The bankruptcy court will require time to make sure everyone’s due process rights are respected, even if they have to make painful sacrifices.”
“Time is not GM’s friend in or out of court,” he added. “But the rights and potentially the livelihoods of employees, dealers, pensioners, suppliers and investors are at stake. It will take time for stakeholder groups to form, lawyers to prepare pleadings, a judge to review them and then make decisions. Rushing the process raises the risks that corners will be cut, due process brushed aside and mistakes made. You don’t want to get sidetracked by litigation or see GM’s ‘quick rinse’ become a ‘rinse and repeat’ bankruptcy.”
Bernstein noted that in the first two weeks of the Delphi Corporation bankruptcy, nearly 300 individual pleadings were filed with the court. Each one had to be prepared, filed and settled, or argued and adjudicated. What his analysis ignores is the possiblity that the Obama adminstration could set up special procedures or have resources diverted from multiple legal jurisdictions to change the pace of proceedings. (more…)