Settlement Reached In August Ruled Unenforceable
General Motors world headquarters in Detroit, Mich.
General Motors Co. avoided a potential $1 billion-plus stock payout to address claims stemming from the auto giants ignition-switch crisis after a judge found a settlement between plaintiffs and a trust for the companys bankruptcy estate unenforceable.
U.S. Bankruptcy Judge Martin Glenn on Thursday ruled that an August deal reached between ignition-switch plaintiffs and a trust tasked with compensating creditors of so-called Old GM couldnt go forward because the settlement lacked necessary signatures. Old GM is the term often used to describe the assets GM left behind in 2009 as part of its $50 billion government rescue and bankruptcy restructuring.
The ruling effectively allowed GM GM, -0.45% to avoid the consequences of the deal, which had contemplated forcing the auto maker to pay the Old GM trust roughly $1 billion in stock to address claims from car-accident victims and customers seeking recompense for declining vehicle values arising from faulty ignition switches.
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Sell This Stock Before It Is Too Late
Heres a good one: What do Confederate dollars, Monopoly money, and the old equity of General Motors have in common?
Theyre all worthless!Really, folks, this is not a drill. Your old GM shares — the ones stuffed under your mattress, the ones in your brokerage account, and the ones youre seeing quoted on Yahoo! Finance — are truly worthless. Dont get caught up in the excitement that GM emerged from bankruptcy court today. The shares of old GM trading on the over-the-counter market have literally no claim on the assets or earnings of the newly reborn General Motors.
Again, this isnt a drill, fancy, or conjecture. Consider this press release from GM last week:
GM management has noticed the continuing high trading volume in GM’s common stock at prices in excess of $1. GM management continues to remind investors of its strong belief that there will be no value for the common stockholders in the bankruptcy liquidation process, even under the most optimistic of scenarios. Stockholders of a company in chapter 11 generally receive value only if all claims of the company’s secured and unsecured creditors are fully satisfied. In this case, GM management strongly believes all such claims will not be fully satisfied, leading to its conclusion that GM common stock will have no value.
Thats to say, the shares of the old GM you might own have no relation whatsoever to the GM that just emerged from bankruptcy. They are completely separate corporate entities.
Companies That Bounced Back Post Bankruptcy
Although no investor would like his company to file bankruptcy if that happens, there are examples of companies that filed bankruptcy and came back from the brink of the debt. Below are a few examples of such companies:
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What To Do With Old Gm Stock
Q: Now that General Motors has filed bankruptcy and has emerged from bankruptcy proceedings as the “new” GM, is the “old” GM common stock worthless? If so, can I take a capital gains loss for this for 2009 tax year?
— DaveA: The old GM isn’t entirely gone yet, but it’s going the way of the GTO.
The old GM sold almost all of its assets to the new GM, then it was renamed “Motors Liquidation Company,” said Jim Marchesi, a certified financial planner with Mill Ridge Wealth Management in Chester.
The Chapter 11 bankruptcy will continue until what remains of the old GM — any other assets and liabilities that were not transferred to MLC — are dissolved.
”Stock held in the old GM is now stock in Motors Liquidation Company. Motors Liquidation Company and the “new” GM are separate entities,” Marchesi said.
He said the new GM — General Motors Company — currently has no stock or bonds owned by the public. Moreover, none of the stock or bonds currently held in Motors Liquidation Company will become securities of the new GM, he said.
”Technically, there is a chance that some value would come from the old stock, but it is highly unlikely and the term ‘when pigs fly’ starts to come into my mind,” said Jerry Lynch, a certified financial planner with JFL Consulting in Fairfield.
He said the new GM is currently a privately held company, 60 percent owned by the U.S. government, and will not be going public in 2009.
What Can A Shareholder Do Next
Shareholders may be able to sell their shares of stock if its still listed on an exchange or they can sell it over the counter and may have to take a loss. If they cant sell, theyll have to wait out the bankruptcy and hopefully get some financial relief in the future.
However, a likely outcome is that the company will cancel all the existing stock, rendering your shares worthless.
If, as a shareholder, you have faith in the management and business model, its possible that the company will recover and the stock price will follow suit. That may be a risky bet, however, because theres a high probability the company will cancel your shares.
Should the company make it out of bankruptcy, then theres a chance itll offer its pre-bankruptcy stock in the over-the-counter market and then offer new stock thats publicly traded on the stock market.
If you want to buy back into the company after bankruptcy, know that the companys OTC stock will have a Q at the end of the ticker name. This old stock is more volatile and could be worth very little. The new stock the company sells may have a V at the end of the ticker name or wont have any additional letters.
Proposed Sale Of Opel And Vauxhall
On May 30, 2009, it was announced that a deal had been reached to transfer New Opel assets to a separate company majority-owned by a consortium led by Sberbank of Russia , Magna International of Canada , and Opel employees and car dealers . GM was expected to keep a 35% minority stake in the new company. It was announced on November 3, 2009, that the GM board had decided not to sell off Opel. However, after the reorganization in 2017, Opel and Vauxhall would later be sold to Groupe PSA for $2.3 billion.
Automaker Slides To 75 Cents As Investors Brace For Expected Bankruptcy Filing
GM stock closed at 75 cents, down more than 33% from Thursday’s $1.12 close.
GM’s stock has been flirting with 1930s-era prices in recent months as a bankruptcy seemed inevitable. The stock touched $1 in intraday trading on May 13, and hasn’t closed that low since April 19, 1933. On that date, GM closed at 97 cents, adjusted for splits.
As recently as 2007, the stock was trading above $40 a share. The Detroit-based automaker’s stock price peaked on April 28, 2000, when it closed at $93.63. At the time, auto sales were at a record high.
More recently, the automakers have been struggling to survive under the weight of the recession and high fuel prices, which have drastically reduced sales.
GM is expected to file for bankruptcy next week, despite an agreement reached Thursday with the Treasury Department and a committee of major bondholders.
Chrysler, another of the Big Three automakers, filed for bankruptcy April 30 and is awaiting a ruling from Judge Arthur Gonzalez of the U.S. Bankruptcy Court in New York, where proceedings have been underway this week.
The other of the Big Three automakers, Ford Motor, rose 19 cents to $5.75. Ford has not sought government aid during a period of sales declines.
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When Did The General Motors Ipo Take Place
No. The old General Motors Corporations common stock became Motors Liquidation Company common stock in July 2009, and traded as MTLQQ on the over the counter market until the confirmed bankruptcy plan cancelled the shares on March 31, 2011.
Motors Liquidation Company and the new GM are separate entities, Marchesi said. He said the new GM General Motors Company currently has no stock or bonds owned by the public. Moreover, none of the stock or bonds currently held in Motors Liquidation Company will become securities of the new GM, he said.
Reorganizing For A New Future
The United States created a plan to help reorganize General Motors under Chapter 11. The new company, General Motors Company LLC, is entirely separate from the original General Motors. A variety of changes have been made to the structure of the company to ensure that it will be more successful in the future:
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If Gm Is Restructured What Happens To Shareholders
Question: If General Motors is restructured , will the shareholders lose all of the stocks they currently own? Or, as long as GM is a viable company traded on the NYSE, will the stockholders retain their shares ?
Paul Solman: Oh, the stockholders retain their shares all right. Its just that theyll be nearly worthless, though probably more than a nickel.
At the moment, AIG stock is still trading around $1.50 a share, down from $70 in the summer of 2007. GM? $1.70 or so, down from nearly $40 back then.
The question isnt whether or not the stockholders get hosed in a bankruptcy: Thats whats SUPPOSED to happen. Stockholders of a company are the last in line when the firm goes under. Thats why stock pays better than bonds: to compensate for the risk of being wiped out in bankruptcy.
The question is whether the bondholders are compensated, or forced to take a significant haircut a discount on their bonds, that is.
Part of the outrage over AIG is that the government has been making good on ITS promises to firms with which it did business. Why? Because of fears that if the government didnt, other firms would topple as AIG did. So the bondholders and other parties with contractual ties to GM, for instance, might get something in a bankruptcy, as creditors usually do. But the shareholders? Nada.
What Happens To Shares
Unlike on most international exchanges where companies going through bankruptcy proceedings will stop trading on the secondary market, a company with shares listed on a U.S. exchange can still trade while in bankruptcy. Shares of these companies will typically be delisted from the exchange and trade on the Pink Market, part of OTC Markets, where a Q can be added to the end of the security symbol to indicate the company is in bankruptcy.
According to OTC Markets Group, the Pink market is the ideal market for distressed companies to trade while they go through the Chapter 11 bankruptcy process.
The Pink Market becomes the default market for companies in bankruptcy and in severe economic distress, said Jason Paltrowitz, executive vice president, corporate services at OTC Markets. It provides a place for these companies to maintain a public quotation and work through their restructure plans while also giving investors a market where they can price their exposure and trade their positions
As of June 12, 47 companies had followed this process in 2020 according to OTC Markets Group, including JC Penney, Diamond Offshore Drilling, Inc. , and Pier 1 Imports, Inc. . If a widely followed company enters bankruptcy, chances are its shares will still remain relatively liquid while it goes through the process. This has been the case with the companies mentioned above, as well as others like Intelsat SA , and McDermott International, Inc. .
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What Happened To Gm Stock After Bankruptcy
The new GM, which emerged after the old GM went through bankruptcy, has no publicly traded stock right now. Investors who own Motors Liquidation shares did not and will not get new stock in the restructured GM when the company makes its initial public offering. It sure sounds like the old GM stock is worthless.
Organizing Gm For Collaboration Instead Of Conflict
The generalization is slightly unfair, but the point is that the trio actually isn’t divisive. If this were the old GM â the company that thought what was good for America was good for General Motors â that might be the case. That’s because the old GM was organized for conflict, with division heads fighting it out for resources and the mothership often lost in a labyrinth of ruinous financial complexity.
Instead, the current team is a model of earnest conflict transmuted into productive collaboration. If you’d quit paying attention to GM a few decades ago, you wouldn’t recognize the carmaker these days. If crosstown rival Ford is family, with all the issues that implies, then GM is a country.
Until Barra’s arrival, that assessment was true: Chapter 11 has chastened GM, but in 2010 the company still swaggered into the largest initial public offering in US history. The temptation was for GM to stage an imperious return to the corporate stage.
Barra, who had run both entire factories and human resources before being tapped by the board to become CEO in 2014, wasn’t going to stick to that script. Before the financial crisis, GM believed itself to be indispensable. Barra, better than anyone, knew that was false. GM wasn’t an empire. It was a fragile, if enormous, group of people who had to work together to survive and prosper.
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The Legacy Of General Motors
General Motors was established in 1908, and grew steadily over the next twenty years. There were a number of factors that led to GM becoming one of the largest auto-manufacturers in the world:
GM was a spectacular company that grew through the years. Its pride in innovation helped it grow significantly through its inception, to the 1970s. However, this golden era couldnt last forever. GM made a number of mistakes over the next three decades that contributed to its eventual bankruptcy.
Investors Betrayed By Gm And Obama
The US government took GM from investors and divided it among these new stockholders.
Last week General Motors went public. General Motors has been resurrected by a taxpayer bailout. When the company sought bankrupty protection, the US government bought the company through an infusion of $49.5 billion in cash. The company was restructured, closing Pontiac and Saturn lines and a number of dealerships. Investor shares were converted to Motors Liquidation Co .
Next we saw the cash for clunkers program that destroyed many used cars, priming the market for more new car sales. Next, we witnessed an unprecedented amount of prime-time advertising for General Motors carsadvertising paid for with your tax dollars. This was a government subsidy aimed at eliminating competition.
Rather than being a referee, the primary role of government in a legitimate economy, the government became a player, competing with its own citizens and throwing a rigged game in favor of General Motorsactually its union. On November 24, 2010, a record 20.1 billion shares was sold in a new public offering at around $35 per share.
What happened to those most faithful GM investors who had kept their money in the old GM? Their shareswhich had been placed in MTLQQwere worthless. Who received the new stock ahead of the IPO? The General Motors Trade Union and the U.S. Treasury. One despondent investor wrote:
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Restructuring Debts Vs Liquidation Procedures
As discussed earlier, the two options under the Bankruptcy filing procedure provide flexibility to the corporates to either reorganize their debts and get some time to recover or to liquidate the company if the operations have already started closing down.
Insolvency and Bankruptcy are now solely controlled by the Insolvency and Bankruptcy Code , 2016. In case of a reorganization, the relevant court appoints a resolution professional who will decide the terms of reorganization considering relevant laws and regulations of the code along with creditors and other lenders considerations.
Not only that but the company is also given 180 days of the moratorium period. In this period, the company cannot transfer its assets or raise cash by itself, no creditor or any other lender can initiate any legal proceedings or enforcement against the company.
The common stockholders shares may reduce in value as the restructuring under insolvency affects the companys share price. Also, since all other creditors and lenders will have more preference over the restructuring terms, the stock value after the reorganization may also get terribly hit. However, if the company proposes a strong plan post the restructuring then investors may be able to get the same value or more in the long term.