Detroit A Chapter 11 filing might be the most effective way to overhaul General Motors Corp., but that doesn’t mean the sweeping changes that are possible in bankruptcy court are going to be quick or easy.
GM CEO Fritz Henderson said Friday that the company still would prefer to restructure out of court as it tries to prove it can survive to repay its $13.4 billion in government loans, but he conceded that bankruptcy protection is more probable than it was in the past.
Henderson said in a conference call with reporters that GM is simultaneously restructuring out of court and planning for Chapter 11. The company would either file a prearranged bankruptcy in which stakeholders agree to take cuts, or use a section of the federal code that allows companies to sell off bad assets and keep good ones.
Experts say there are many reasons why the quick, “surgical” bankruptcy that GM may seek won’t be as smooth or as fast as the company and U.S. government expect.
“It would be a mammoth undertaking,” said Jon Groetzinger, a visiting law professor at Case Western Reserve University in Cleveland. “It has been done, not on a scale quite as big as GM.”
In order for it to go quickly, GM would have to gain agreements from creditors to wipe out debts, unions to change contracts, and perhaps dealers to alter franchise agreements, experts said. There could be thousands of claims from employees, retirees, parts suppliers and others that would have to be heard by the court.
“The only way it would be speedy was if they had all the agreements in advance. But then why would you need it?” asked Doug Bernstein, a lawyer with Plunkett Cooney PC in Bloomfield Hills, Mich.
It’s overly optimistic to think GM can go in and out of bankruptcy for a “quick rinse” of its troubles in as little as two weeks to four months, according to Bernstein. The process, he said, could drag on because creditors could object to contract changes and be heard in court. Experts say six months would be considered quick.
Key to emerging quickly would be advance deals with the United Auto Workers union and holders of roughly $28 billion in GM bond debt. Bondholders are being asked to take stock for part of their debt, while the union is negotiating to accept stock for roughly $20 billion in payments GM must make to a trust that will take over retiree health care costs next year.
The decision to file for bankruptcy would be made with the Treasury Department’s autos task force and GM’s board.