The U.S. Bankruptcy Court for the Southern District of New York has confirmed, subject to minor modifications, the proposed reorganization plan (Plan) of General Motors Corp., now known as Motors Liquidation Company (Old GM). Although overwhelmingly approved by Old GM’s creditors, hedge funds (Funds) that held debt of one of Old GM’s subsidiaries objected to the Plan because their claims are disputed by Old GM’s creditors’ committee and the Plan does not require immediate distribution to holders of disputed claims. The Funds claimed that the Plan was not proposed in good faith, that it unfairly discriminated between holders of disputed and undisputed unsecured claims, and that it failed to segregate a reserve for the Funds’ claims. The Court rejected all of these contentions, holding that it was fair and reasonable for Old GM to delay even partial payment of disputed unsecured claims until such claims were resolved. We summarize the Court’s decision, with an emphasis on the Funds’ objections. See generally “Legal Considerations for Investors In and Around the General Motors Bankruptcy, And Similar Distressed Situations Involving Politically Important Stakeholders
,” Hedge Fund Law Report, Vol. 2, No. 23 (Jun. 10, 2009); “Equities of Bankrupt Companies Offer Hedge Funds a High Risk, Potentially High Return Method of Investing in Restructurings
,” Hedge Fund Law Report, Vol. 2, No. 27 (Jul. 8, 2009).