Lawsuits Could Put General Motors Back in Trouble

By  AUG 08, 2012 11:30 AM

The next few weeks will be crucial for the auto company.


General Motors (GM) may see adverse effects on its progress pending a lawsuit pitting general creditors against hedge funds over $3 billion.

According to Bloomberg, the lawsuit went to trial Tuesday and involves the Elliott Management Corp. and Fortress Investment Group (FIG) hedge funds.

It has been an eventful week so far for GM as Dutch car manufacturer Spyker is currently suing GM for $3 billion on behalf of its Swedish subsidiary Saab.

Spyker claims that GM purposely sent Saab into bankruptcy by blocking a deal with a Chinese car manufacturer. According to Spyker, GM interfered with a deal between Saab, Spyker and Chinese investor Zhejiang Youngman Lotus Automobile. Through this deal, Saab would have been able to restructure and remain solvent. The $3 billion claim against GM is the amount that the deal with Youngman would have been worth.

A trust for creditors of the old, bankrupt part of the auto-maker now known as Motors Liquidation Co. sued the hedge funds in a Manhattan bankruptcy court in March, alleging that while GM was preparing its bankruptcy filing on June 1, 2009, four hedge funds, which held notes in a Canadian unit of GM, “saw an eleventh-hour opportunity for profit and pounced.”

This latest lawsuit will only serve to undo the new GM further. According to Bloomberg, "The trust seeks to have a $2.67 billion claim and a $367 million payment negotiated for holders of notes in GM's Nova Scotia unit disallowed or reduced, saying the hedge funds seek more than three times what General Motors actually owed them."

The trust is known as the Motors Liquidation Co.'s GUC Trust and it represents the rights of creditors to recover stocks and warrants in the case. It recently traded at $13.94.

“New GM intends to participate in the trial of the claims objection to the extent required to protect and preserve the sale order,” lawyers for the company wrote.

The crux of the case seems to be that since GM didn't complete its agreement with the hedge funds until after it filed for bankruptcy, it required approval from bankruptcy court and never got it.

The next couple of weeks could prove integral to General Motors' future.

On Wednesday, General Motors traded flat at about $20.40.

Editor's Note: This content was originally published on by Brett Callwood.

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