Judge to Rule Whether GM Bankruptcy Favored Hedge Funds Over Creditors

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Judge to Rule Whether GM Bankruptcy Favored Hedge Funds Over Creditors

by Joel R. Glucksman on January 18, 2013

Bankruptcy Judge to Provide Ruling

U.S. Bankruptcy Judge Robert Gerber is expected to hand down a ruling shortly on a controversial provision of the 2009 restructuring of General Motors, the results of which may cost GM upwards of $1 billion dollars.

The issue is whether GM unfairly favored hedge fund investors over its unsecured creditors when it entered into a "lock-up agreement" during its restructuring, in which it sent $367 million to a group of hedge funds, according to Reuters. The unsecured creditors argue that this lock-up agreement should be invalidated by Judge Gerber, asserting that it was a secret deal that took place after the company filed for protection under bankruptcy law. As a result, the creditors say that the deal required Gerber's approval before being honored.

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