A bankrupt General Motors Corp
GM would have to reach agreement with most parties prior to filing and then move its healthy operations quickly to a new entity that is free of pre-bankruptcy liabilities, said Mark D. Collins, director of Richards, Layton & Finger in Wilmington, Delaware.
The key is speed, he said, speaking at a panel discussion hosted by the ABF Journal and the New York Institute of Credit. Broad consensus prior to a filing would allow GM to use the courts to force holdouts to any deal.
The last one not on board with a deal will get run over, he said.
The judge who handles the case, should GM file, would be under pressure to accelerate the proceedings, said Kevin Gross, a judge for Delaware's bankruptcy court.
It has to be out in 30 to 60 days, he said. It would open a tremendous sinkhole (in the economy) not to make it happen.
Gross added the case would present a challenge for the court. How long would it take for a judge to understand it? he asked.
Gross and fellow Delaware bankruptcy court judge, Kevin J. Carey, said they had no special knowledge of whether GM might file or how the case may proceed, although they both said they expected it to enter bankruptcy.
GM is surviving on more than $13 billion in emergency loans from the government, which has given the company until June 1 to present a plan to restructure its roughly $28 billion in unsecured debt. The government and the company have said bankruptcy is a possibility.
Gross said a court could take steps to speed up the process, such as eliminating some issues relating to federal law regarding mass layoffs.
Carey said it was possible Congress might pass legislation to move GM through bankruptcy more quickly.
The risk of Congress getting involved, said Collins, was that they might attach stipulations such as requiring GM to buy more U.S. auto parts, which could complicate a reorganization.
Collins also said he expected GM to file in New York because of the court's experience and speed, such as in the sale of Lehman Brothers Holding Corp's brokerage business.
Adam H. Isenberg, a partner with Saul Ewing in Philadelphia, said the main difference between Lehman and a possible GM filing was that the Lehman deal was so sudden.
With GM, every large sophisticated creditor is lawyered up, he said. If there is opposition from unions or bondholders they are well poised to assert their opposition (to a quick sale of GM's healthy assets) in a coordinated fashion.
(Reporting by Tom Hals; Editing by Richard Chang)