Settlement Agreements and Consent Decrees -- 2017

General Motors LLC v. Elliott   (U.S. Supreme Court)

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 has appealed to the Supreme Court. On Jan. 17, 2017, the NAM supported this appeal with an amicus brief, 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. The decision below also violates a technical provision in bankruptcy law that requires the issuance of a stay prior to revoking the "free and clear" finding in a sale order. Moreover, it contradicts the basic principle of imposing liability on the party at fault, rather than on a good-faith purchaser of assets.

The Court declined to review this appeal on April 24, 2017.

Related Documents:
NAM amicus brief  (January 17, 2017)


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