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General Motors gets bad news in bankruptcy lawsuit

| May 4, 2017 | Bankruptcy, Bankruptcy |

The final outcome of a case that went all the way to the Supreme Court of the United States certainly isn’t a cause for celebration by General Motors (GM).

GM had sought to avoid several hundred lawsuits by people who allege that ignition-switch defects on their vehicles led to injuries or death. Faulty ignition switches on GM vehicles are connected to around 275 injuries and 124 fatalities.

The switches were able to slip out of place while the vehicles were running, sending them into a sudden, full stop. The problem also may have prevented the front air bags on affected cars from deploying properly. This led to a recall of over 2.7 million vehicles. However, GM knew the defect was present on a number of models that were made between 2003 and 2011 — long before the 2014 recall.

While GM has already paid more than $800 million out in claims related to the issue, there are hundreds of other injured people or their families that haven’t yet received any compensation — and GM was hoping they never would.

Under GM’s theory, the company’s 2009 Chapter 11 bankruptcy reorganization led to the formation of an entirely new company, General Motors Co., which bought the good assets of the old company. The old company, called either “Old GM” or Motors Liquidation, kept the company’s debts — including potential product liability lawsuits. Normally, the company would be right — bankruptcy law can shield a company that reorganizes from old lawsuits against its former self.

In this case, however, the judge in a lower court essentially said that the new GM didn’t deserve the bankruptcy protection because it knew about the defects at the time it filed and failed to disclose them to the court.

Failing to disclose the potential liabilities or debts of a company on the financial forms required for bankruptcy is a type of bankruptcy fraud.

Situations like this illustrate what can happen when a company fails to carefully follow both the letter and the intention of the law in a bankruptcy. An attorney can provide advice on bankruptcy issues or discuss a specific case with you. .

Source: Detroit Free Press, “Supreme Court: GM can’t avoid defect ignition-switch lawsuits,” April 24, 2017

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