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Vol 15, Num 4 l September 2016

Business Reorganization An ABI Committee Newsletter - Spnsored by The Wall Street Journal

► In This Issue:

Second Circuit: “Free and Clear” Section 363 Sale Order Does Not Enjoin Faulty Ignition Switch Claims Against General Motors

ABI

George P. Angelich
Arent Fox LLP
New York

ABI

Manuel G. Arreaza
Arent Fox LLP
Washington, D.C.

In 2009, General Motors (“Old GM”) commenced an historic chapter 11 case. With federal government backing, Old GM sold the bulk of its business and assets “free and clear” of liabilities to the new entity (“New GM”) predominantly owned by the U.S. Treasury, emerging from chapter 11 in just 40 days. In the contentious aftermath, courts have continued to grapple with issues arising from the case. On July 13, 2016, a Second Circuit panel reversed in part a decision by the U.S. Bankruptcy Court for the Southern District of New York that enforced the sale order to enjoin claims against New GM over faulty ignition switches in cars manufactured by Old GM.

The Second Circuit found that Old GM had knowledge of the defects prior to the bankruptcy case and could identify the claimants, and as a result, that plaintiffs (i.e., vehicle owners) were entitled, as a matter of procedural due process, to actual notice of the bankruptcy sale and an opportunity to assert their claims and participate in the sale negotiations. The Second Circuit’s decision clears the way for ignition switch defect lawsuits to proceed against New GM. In addition, it provides critical guidance for bankruptcy practitioners to understand the risks and limitations on enforceability of “free and clear” sale orders to enjoin future claims by known parties that do not receive actual notice of the sale.
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Over Thirty Years Later Johns-Manville Asbestos Litigation Still Alive

ABI

Brett Border
Fabrizio and Brook P.C.
Troy, Mich.

On June 30, 2016, the U.S. Bankruptcy Court for the Southern District of New York issued yet another decision around the Johns-Manville asbestos litigation. Before the court was Graphic Packaging International’s emergency motion to enforce the confirmation and channeling orders in the Johns-Manville Corp. (“Manville”) and the Manville Forest Products Corp. (“MFP”) chapter 11 cases. The motion sought to enjoin an asbestos-related lawsuit brought in Louisiana state court against Graphic, the successor of MFP.
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Delaware Bankruptcy Court Disagrees with Second Circuit’s Law Concerning the Safe Harbor under 11 U.S.C. § 546(e)

ABI

George Utlik
Arent Fox LLP
New York

The “safe harbor” under § 546(e) of the Bankruptcy Code continues to be a “hot topic.” The safe harbor is often invoked by shareholders to protect their “settlement payments” in a leveraged buyout (LBO). This year alone, the scope and application of the safe harbor were reshaped by several courts, including the Second Circuit and the bankruptcy courts in the District of Delawareand Southern District of New York. These courts’ decisions produced different results and should be carefully examined by shareholders and other parties in interest participating in an LBO.
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