Bankruptcy court to rule on New GM plan

General Motors Corp is heading to bankruptcy court on Tuesday to seek approval to sell its assets to a New GM in a plan to reinvigorate the automaker under U.S. government ownership.

GM is seeking approval for the sale from U.S. bankruptcy Judge Robert Gerber just 30 days after filing for Chapter 11. Under the deal, brokered by the Obama administration's autos task force, the company would sell its assets under Section 363 of the bankruptcy code to a New GM and continue to operate its best assets, like Chevrolet and Cadillac, while gaining access to billions in funding from the U.S. Treasury.

GM's old assets would remain behind in bankruptcy court to be liquidated.

The deal faces several objections from bondholders and those concerned about the fate of its dealers, but no competing bidders have emerged as an alternative to the U.S. government's $60 billion financing for GM, including a proposed equity investment of $50 billion that would give the U.S. Treasury a 60 percent ownership stake.

If the sale goes through it would mark the second big win this month for the Obama administration's autos task force, which successfully brokered the sale of Chrysler LLC to a group led by Italy's Fiat SpA. The U.S. Supreme Court cleared the way for that deal to go through on June 9.

I think it is going even perhaps more smoothly than Chrysler, which is kind of interesting considering how much bigger GM is than Chrysler, said Stephen Lubben, a bankruptcy professor at Seton Hall Law School in New Jersey.

Chrysler cleared the path for it and they're using pretty much the same strategy, he added.

GM said in court documents that the sale would avoid a systemic failure for the U.S. auto industry and that it is the only way to provide a genuine opportunity for the business to survive and thrive in an economically viable entity.

The company has shut 13 of its U.S. assembly plants for up to 11 weeks as part of a bid to cut production and run down inventory while it seeks approval of the sale in bankruptcy court.

The company plans to shed dealer contracts and has deals to sell brands like Hummer and Saturn that will not be carried over to the new company. It also plans to shed the Pontiac brand and GM said on Monday that it would cut operational ties with a Northern California auto plant it had operated in a joint venture with Toyota Motor Corp.

UPHILL BATTLE FOR CHALLENGERS

While dozens of objections have been filed in the bankruptcy case, some have already been resolved or withdrawn, and challengers to the deal could face an uphill battle since the same court has already approved the Chrysler sale.

I think Judge Gonzalez kind of made life easier for Judge Gerber here, Lubben said, citing the New York bankruptcy judge who approved Chrysler's sale and the several higher courts that backed his decision.

People basically know the Second Circuit has already largely blessed this structure, he added.

GM has said more than 50 percent of its bondholders support the deal and also argued that the sale would maximize recovery for its stakeholders. Under the plan, the U.S. government would take a 60 percent stake in the newly formed company, the United Auto Workers union would have a 17.5 percent stake, the Canadian government would own about 12 percent, and GM bondholders are expected to get about 10 percent.

A group of small bondholders, which calls itself the Unofficial Committee of Family & Dissident GM Bondholders, have said they do expect to mount a challenge to the sale. They filed court papers last week saying they may seek to call GM CEO Fritz Henderson and Harry Wilson of the U.S. Auto Task Force to take the stand as witnesses as they mount their case.

While Judge Gerber has said the group is free to make its case in court, last week he rejected its request to become an official committee, blocking the group's attempt to gain more funding to mount a legal battle.

Several other individual bondholders -- some representing themselves -- have filed objections to the sale, along with the State of Texas which is claiming that the sale illegally challenges state laws on dealerships, and a group representing about 300 Americans with lawsuits against GM for alleged product defects.

GM, however, resolved a key objection from nine state attorneys general over the weekend, saying in court papers that the New GM would accept liability for future product defects. The company also said it would address objections raised by over 20 of its parts suppliers.

The case is In re: General Motors Corp, U.S. Bankruptcy Court, Southern District of New York, No. 09-50026.

(Reporting by Emily Chasan; Editing by Richard Chang.)