GM pays to end lawsuit over hedge fund deal image

General Motors agreed to pay $50 million to end a long-disputed litigation concerning a secretive deal that was struck on the eve of the automaker’s 2009 bankruptcy.

The agreement puts a stop to a very complex litigation issue, concerning  hedge funds affiliated with John Paulson and Paul Singer’s Elliott Management, who decided to allow a reduction to the amount they said they were owed in the bankruptcy of “Old GM.” The agreement was signed on Friday.

The trust called GM and the hedge to court back in 2012, attacking an agreement that was signed as the carmaker was filing for bankruptcy. Under the deal, the hedge funds agreed to renounce to their claims of more than $1 billion owed to them by a Nova Scotia unit of GM in return for receiving just $367 million. The plan was originally devised to keep GM Canada out of insolvency, which would have complicated the expedited sale of the best assets belonging to General Motors Co. Also known as “New GM,” the company was swiftly back on the stock market in 2010, just as idling factories and equipment were liquidated for the benefit of creditors.

GM had warned the litigation could put it on the hook for $918 million. That threat was removed by the settlement, which still needs to be approved by the U.S. Bankruptcy Court in Manhattan at a hearing scheduled for October 21.

Via Reuters