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General Motors to settle suit with $50M payment

General Motors will pay $50 million to settle a complex lawsuit regarding money that the Michigan firm allegedly shortchanged creditors during its 2009 bankruptcy declaration. The claim accused GM of arranging a deal with several hedge funds in which those funds agreed to accept less money than they were owed in order to save the company's Canadian arm from bankruptcy.

According to GM, settling the business litigation will likely have saved it millions of dollars; company officials previously estimated the lawsuit could have cost the firm close to $1 billion. That was because the trust asserted that the case should be handed over to the U.S. Bankruptcy Court, which GM said may have resulted in roughly $918 million in claim.

The hedge funds reportedly agreed to accept $367 million instead of the $1 billion owed to them by a Canadian unit of GM, saving that branch from being disassembled to pay creditors. Indeed, creditors received proceeds from the sale of several American facilities and equipment, but still received a small fraction of what they were owed. The surviving Canadian entity would go on to become popularly known as "New GM."

Both GM and the hedge funds deny wrongdoing, arguing that they did not intend to hide the deal as they fully detailed the agreement in security filings. Still, the judge who heard the case explained he was "shocked" by the matter and has yet to finalize the settlement. He told the litigants that it could take weeks or months before he issues a conclusive decision.

The settlement also saw the hedge funds agreeing to accept a reduced payment from Old GM. Their claims against the firm will drop from $2.67 billion to $1.54, effectively allowing Old GM to pay out more of its creditors.

Major settlements such as this can save businesses millions of dollars in fees and liabilities, making proper legal representation crucial for Michigan companies of all sizes.


Source: 
Fox Business, "GM pays $50 million to end lawsuit over 2009 hedge fund deal" No author given, Oct. 01, 2013

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