US bankruptcy judge Robert Gerber said yesterday during a hearing in his Manhattan court that General Motors could lose some of its legal protection stemming from the company’s 2009 bankruptcy sale.
The judge contended that he would only consider narrowing the defense mechanisms offered to the largest US automaker if General Motors is found guilty of having violated car owners’ constitutional rights – meaning it would have intentionally hid the ignition-switch defects during its bankruptcy proceeds. Gerber made for the first time comments on his views in a war between the automaker and plaintiffs who seek billions in compensation for the loss of vehicle resale value due to the record string of recalls seen last year. The claims surround numerous recalls that were prompted by the February scandal when GM called back 2.6 million older cars due to defective ignition switches.
GM’s 2009 bankruptcy process involved the sale of profitable assets to the company that now operates under the brand name. The liabilities in turn were shed and entrusted to the “Old GM” a shell with limited assets. The automaker says the plaintiffs have to seek compensation from the latter as the vast majority of claims involve cars made before it went bankrupt. On the other hand, the plaintiffs believe the new company should offer the necessary compensation because it withheld the information about the defects during the bankruptcy sale proceeds – violating their rights. “As I read the sale order, it’s a ‘get out of jail free’ card,” the judge said. “That is a matter of concern for me.” Gerber is not expected to rule for weeks or even months and his comments so far denote a neutral stance to both parties.