Apr 26, 2009

Is a Quick Cleansing Possible?

There is a great deal of talk now of General Motors filing for Chapter 11 bankruptcy in late spring or early summer and rapidly emerging clean and refreshed, as if the giant industrial corporation had experienced a spa treatment. Some suggest it could emerge from bankruptcy court supervision as a smaller but viable company in as little as two weeks, or failing that, two to four months at the outside. Not so fast, say the bankruptcy experts at the law firm of Plunkett Cooney. They label either scenario “exceedingly optimistic.”

“Bankruptcy may indeed be the last, best option to restructure General Motors because of the multitude of challenges the company faces and its deeply entrenched stakeholders,” said Doug Bernstein, head of Plunkett Cooney’s banking, bankruptcy and creditors’ rights practice group. “But it’s unrealistic to expect that the process will go smoothly and quickly. The company is massive, its operations are complex, and it has thousands of potential claimants and interested parties. The bankruptcy court will require time to make sure everyone’s due process rights are respected, even if they have to make painful sacrifices.”

By taking a “quick rinse” bankruptcy, some suggest that GM can resurface quickly as a renewed player in the automotive marketplace, but if the company lingers in bankruptcy court for an extended period, it could be disastrous for the consumer perception of its brands and the sales of its models. In fact, the longer a consumer-facing company like GM is in bankruptcy, the more difficult it could be to come out as an intact, viable company.   

“Time is not GM’s friend in or out of court,” Bernstein added. “But the rights and potentially the livelihoods of employees, dealers, pensioners, suppliers and investors are at stake. It will take time for stakeholder groups to form, lawyers to prepare pleadings, a judge to review them and then make decisions. Rushing the process raises the risks that corners will be cut, due process brushed aside and mistakes made. You don’t want to get sidetracked by litigation or see GM’s ‘quick rinse’ become a ‘rinse and repeat’ bankruptcy.”

Bernstein noted that in the first two weeks of the Delphi Corp. bankruptcy, nearly 300 individual pleadings were filed with the court. Each one had to be prepared, filed and settled, or argued and adjudicated. That takes time, and time in such an instance is not on GM’s side.