MSU Law Faculty in the News
Explaining GM Bankruptcy
Experts say if a large company like GM files for Chapter 11 Bankruptcy Protection, the proceedings could take months.
May 27, 2009
WILX-TV
It's not a chapter you envision in the history of an American auto icon -- Chapter 11 bankruptcy.
"Bondholders are critically important here, stock holders, they've already lost almost all of it, and if they go into bankruptcy they will lose everything," said MSU Economist Charles Ballard.
And MSU Law Professor Anne Lawton says a grand company like GM filing for Chapter 11 will be tricky.
"You go in and you come up with what's known as a plan of reorganization, and then what happens is your creditors are dealt with in that plan -- you say I'm going to pay you this amount of money," Lawton said.
And then they vote on it -- Lawton says secured creditors are paid out first, such as the banks, followed by unsecured creditors like the unions, but there's several creditors at the table Lawton says, and the negotiations could take months.
"They have 4 months where they're the only ones that can propose a plan, but the bankruptcy court can extend that period of time, so they could be in bankruptcy a year or longer trying to negotiate a plan that creditors will say I like, and I'll vote "yes" on," Lawton said.
Experts say the unprecedented factor in this bankruptcy would be the government's large involvement.
"Because the government has put about $20 billion into GM, it's a player in this proceeding in a way that it usually is not," Ballard said.
But that powerful government presence could prove helpful.
"The upside is that the government is able to do things and to apply some pressure, that perhaps wouldn't have happened otherwise," Lawton said.