Who will take the claims? New- General Motors (NASDAQ:GM) or Old-GM

Roger Dean Gillispie was a security guard at General Motors (NASDAQ:GM). He was given a jail sentence for rape. In 2011, federal court ordered for his release. Now, with the support of hedge funds, he is suing General Motors (NASDAQ:GM) for framing him in the case.

Gillispie sent a petition to the bankruptcy court of New York to obtain permission for suing the company. Claims have been made against General Motors (NASDAQ:GM) regarding the reorganization of chapter 11 in 2009. The bankruptcy court is overseeing these claims. It is now thinking that whether Gillipie should acquire damages from the old-GM, a trust build up of a limited number of assets, or the new-GM, the profitable organization that survived and defeated bankruptcy.

Former owners of General Motors (NASDAQ:GM)’s cars who suffered because of the mass recalls that were made earlier this year due to a faulty ignition-switch, have filed around 100 lawsuits to gain permission from the New York bankruptcy court to pursue the company, new-GM. Gillispie is making the same arguments as these people.

The legal problems clearly show the unexpected impact of General Motors (NASDAQ:GM)’s split. New-GM cannot be held responsible for any liabilities that occurred before its creation, under the bankruptcy agreement of 2009. Meanwhile, Gillispie and the car owners are arguing that the key facts of their cases could not have been known before the company went bust and therefore, this gives them the right to sue the new-GM. Hedge funds who already have claims over the old-GM would prefer that the new claimants file claims over the new-GM.

The representative lawyer of the car switch plaintiffs did not offer any comment. These plaintiffs have another argument that new-GM can potentially violate their due process rights if it tries to impose its claims on the old-GM. A spokesman for the company said that the new-GM cannot take any claims from Gilllispie for an event that may have occurred 18 years prior to its existence. General Motors (NASDAQ:GM) has clearly stated that plaintiffs and Gillispie, with claims for events before 2009, have no right to pursue the new-GM.

It all comes down to the judge, Rober Gerber, of the bankruptcy court. If he agrees that the plaintiffs and Gillispie can sue the new-GM for claims before 2009, then the company could potentially pay damages worth hundreds of millions in dollars.

The hedge funds which hope that the plaintiffs and Gillispie will be allowed to file claims over the New-GM include Davidson Kempner Capital Management, Empyrean Capital Partners, Angelo Gordon & Co and several others. The reason is that the old-GM already has limited assets which they have bought rights to. If the claimants are directed at the old-GM then the investors will not get as much as they hope for from the funds of old-GM.

The assets of the old-GM are worth about $9.25 billion whereas the claims are worth $32 billion. After doling out several assets, the trust is left with $1.2 billion. It all comes down to what the judge decides.