Motors Liquidation, New GM ink forbearance tied to injury lawsuits

By Caroline Salls

Pittsburgh, Sept. 13 – Motors Liquidation Co. GUC Trust and General Motors LLC (New GM) entered into a forbearance agreement related to economic loss, personal injury and/or death lawsuits filed by lessees or owners of vehicles manufactured by General Motors Corp., according to an 8-K filed Wednesday with the Securities and Exchange Commission.

The trust said some of the potential plaintiffs have filed lawsuits against New GM, have filed motions seeking approval from the U.S. Bankruptcy Court for the Southern District of New York to file claims against the trust or are members of a putative class covered by those actions.

According to the 8-K, the trust was previously in settlement discussions with some of the potential plaintiffs, but the trust and New GM ultimately filed a letter with the court that the trust was no longer moving forward with a potential settlement and that the parties had reached an agreement in principle regarding a forbearance.

On Tuesday, the trust executed an agreement documenting the New GM proposal.

New GM agreement

Under that proposal, New GM will reimburse the reasonable legal and expert fees of the trust incurred in connection with defending against the late claims motions, opposing the proofs of claim, any related appeals or litigation and the preparation, negotiation and prosecution of the New GM agreement.

During the term of the New GM agreement, the trust will refrain from seeking an order estimating the claims of the potential plaintiffs or seeking the issuance of additional adjustment shares of New GM common stock until the earlier of the date on which both a final non-appealable order has been entered adjudicating or resolving the late claims motions and a final non-appealable order has been entered resolving class certification issues in a multi-district proceeding, and the date on which the agreement otherwise terminates in accordance with its terms.

The forbearance obligation does not restrict the trust from settling any claims against it using solely trust assets and without seeking the issuance of adjustment shares.

If the trust is in a position to make a distribution of excess trust assets but that distribution is stayed because the late claims motions or any related litigation is pending, then the trust and New GM will discuss whether New GM is willing to pay an appropriate rate of return to the trust on the principal amount of the stayed distribution and, if so, the amount of that rate of return for the delay in distributions as a result of the litigation.

Also, if an appropriate rate of return cannot promptly be agreed, the trust may terminate the New GM agreement on 30-days’ written notice, and the forbearance obligation will be lifted.

The agreement is subject to bankruptcy court approval, together with a finding that the potential plaintiff settlement was not binding on the trust.

The trust filed a motion for approval of the agreement on Tuesday, but no hearing has been scheduled yet, according to the 8-K.

Plaintiffs seek enforcement

Although no formal settlement was reached, the trust said some of the potential plaintiffs filed a motion on Monday asking the court to rule that a settlement was binding on the trust and looking to enforce settlement terms.

If the court grants the enforcement motion, the New GM agreement will not take effect.

Motors Liquidation, formerly General Motors, is a Detroit-based automaker that filed for bankruptcy on June 1, 2009. The new General Motors Corp. emerged from Chapter 11 on July 10, 2009. Motors Liquidation’s Chapter 11 case number is 09-50026.

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