Settlement Agreements and Consent Decrees -- 2016

Elliott v. General Motors LLC   (2nd Circuit)

Validity of bankruptcy sale of assets "free and clear"

The General Motors bankruptcy filing in 2009 was a dramatic effort to save the company and the hundreds of thousands of jobs, businesses and communities that depended on it. It resulted in the sale of the company's assets to a new government-owned entity. The price paid for those assets was substantial, and allowed the new company to start fresh, "free and clear" of old liens, claims and liability from activities of the old company.

This case involves whether the new company is still responsible, 5 years later, for claims against the old one -- specifically for accident claims and economic loss claims arising from an ignition switch defect. The appeals court ruled 7/13/16 that the new company may be responsible for claims from claimants that did not receive adequate notice of the sale order in the bankruptcy proceeding. The lower court had found that the claimants were not prejudiced by the bankruptcy decision, but the appeals court thought that if they were involved, they might have been able to secure a different outcome in the bankruptcy proceeding.

The new company appealed to the full set of judges on the Second Circuit to rehear this case. The NAM supported this appeal with an amicus brief on 8/10, arguing that disallowing the "free and clear" sale provision undermines the integrity of asset sales under Section 363 of the Bankruptcy Code, negatively impacting debtors, creditors and buyers. Unless assets can be sold in bankruptcy free and clear, they will not be worth as much to the new buyer, and creditors of the bankrupt company will have less money available to pay their claims. The decision also puts good faith purchasers of a bankrupt company's assets into the position of being responsible for actions taken, or not taken, by another company. Instead, the responsibility for the failure of notice should be on the bankrupt seller, not the innocent purchaser.

Unfortunately, the court declined to rehear this case on Sept. 14, 2016.

Related Documents:
NAM amicus brief  (August 10, 2016)


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