General Motors sought bankruptcy protection and filed Chapter 11 bankruptcy on June 1st 2009. GM’s filing bankruptcy followed on close heels of another auto giant Chrysler filing bankruptcy. GM is trying to emerge as a new company by filing bankruptcy. Reports suggest that this is probably the 4th largest bankruptcy filing in the history of United States. The company is trying hard to avert a lengthy sale that could delay and postpone its emergence as a new company. When Chrysler filed bankruptcy, several bondholders objected to Chrysler’s filing bankruptcy. As such, the sale hearing was delayed for 3 days.
On July 1st 2009, the chief of General Motors Fritz Henderson had to face questions from attorneys that lasted several hours. There are many parties challenging the company’s sale. The opposing parties include unions, bondholders and various consumer groups. When questioned about the company’s current operations, Fritz Henderson the CEO of the company stated that the company’s performance in the month of June had improved.
The CEO of GM went on to say that in case the Treasury doesn’t extend support to the company, GM will have to face liquidation. In fact, the company has 2 options left with. It is either liquidation or sale. GM plans to sell its assets through a process that is referred to as 363 sale, which is a chapter in bankruptcy code. The sale value is USD$90 billion.
What will be the nature of the “New GM?”
The company intends to do away with dealerships, plants debts and other liabilities. The company intends to emerge anew from Chapter 11. The new GM will have approximately USD$17 billion as debt. This is in sharp contrast to USD$54.4 billion GM owed to creditors as of 31st March, 2009.
Major shareholders of New GM
The new GM will have the U.S. government as its major owner with 60% stake followed by the Canadian government that will have a 12.5% stake. United Auto Workers Union will have a 17.5% share. The remaining 10% will go to the unsecured bondholders. The existing shareholders of GM will no longer have any stake in the new GM.