Wednesday, April 15, 2009


Why NY or Delaware? Why not in Detroit for the home field advantage? There are many hurdles to be overcome in a quick bankruptcy for GM. First, there is that sticky UAW situation. To get the UAW on board in two weeks means that the UAW will continue to work even though the resolution of significant liabilities and benefits will not be resolved for months. Possible, but how likely?

How about the dealers? The dealers of the bad asset brands will have to await the fate of their brands. But the dealers for the good asset brands will have to addressed in two weeks. Which dealers will survive and which will GM look to close? And all of these dealer contracts are governed by individual state franchise laws. I am not sure that can be resolved in two weeks.

What about all the plants and locations? Some of those plants make products for good asset brands and bad asset brands. Some good asset locations have to be closed and others consolidated. A number of these locations are outside the United States which should add wrinkles. And wrinkles always add delay. Decisions have to be made in two weeks. What about the objections of landlords and mortgage holders?

What about the treatment of the continuing vendors and suppliers? Will their claims receive different treatment depending on whether or not they supply a good asset brand? After all, many of these suppliers and vendors are highly dependent on receiving payments from GM. Sounds like a lot to me.

It sounds like a lot to occur in two weeks because of the process. Even if some of the decisions are made before the bankruptcy filing, the affected parties are entitled to their day in court. They will need an appropriate length of time to put forth their objections and be heard.

So, why a chapter 11 filing in New York or Delaware? First, please note that the Federal bankruptcy court is a court of equity, not a court of law. This means that the bankruptcy judge has great leeway in determining in his or her on discretion what is the best course of action for the matter at hand. The reason for a filing in one of these two bankruptcy courts is the extensive experience of their judges. The vast majority of large and complex corporate bankruptcies have been filed in these two jurisdictions since the Bankruptcy Code became effective in 1979.

In order to have a two-week bankruptcy, the judge will have to be very experienced in dealing with large bankruptcies and be very comfortable in deciding that protecting the value of the company over the objections of various parties comes first. Only an experienced judge will be able to pull this off. While one might be inclined to file in Detroit because of a natural hometown bias, upon reflection, the GM management, board and advisors might be better off in NY or Delaware. Rest assured, even as you read this, there is a heated discussion going on amongst these parties on where to file.

Cheers, Mike

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