The Second Circuit handed a stinging defeat to General Motors Co. (also known as New GM) in an opinion on July 13 that countenances no excuse for failing to give actual notice to creditors of an impending sale when the company in reorganization knows the claims to exist, according to an analysis by ABI Editor-at-Large Bill Rochelle. It is not entirely clear from the opinion whether a purely third-party purchaser of assets “free and clear” at a bankruptcy sale will be saddled with successor liability on claims of known creditors who were not given notice of an upcoming sale. In the GM case, the auto maker essentially remained in business after the assets were sold in a Section 363 sale, thus making successor liability an easier pill to swallow. Although the Second Circuit is allowing lawsuits against New GM based on defective ignition switches, the appeals court did not decide whether New GM in fact has successor liability. The opinion is an important pronouncement on the due process rights of known creditors and the consequences of a lack of notice. The opinion leaves open the question of whether the lack of prejudice can turn a due process violation into harmless error. Full analysis.
Click here to read the ruling.
Don’t miss the Great Debate at ABI’s Views from the Bench conference on Oct. 7, as Judge Robert Gerber (ret.) & Goodwin Procter's William Weintraub debate whether §363 sales lawfully be free and clear of successor-liability claims. The early bird rate expires on Friday, so please register here!
