By Dow Jones Business News, October 14, 2013, 02:57:00 PM EDT
By Joseph Checkler
U.S. Attorney Preet Bharara is balking at a bid by a group of investors for payment of their legal fees out of the
coffers of the bankruptcy estate of "old" General Motors, calling the request "self-interested creditor advocacy."
In a Friday filing with the U.S. Bankruptcy Court in Manhattan, Mr. Bharara said lawyers for John Paulson's Paulson &
Co. hedge-fund firm, Paul Singer's Elliott Management and other holders of GM Nova Scotia notes haven't shown that
they've made a "substantial contribution" to the old GM estate, in spite of their settlement of a $2.67 billion claims
fight in GM's bankruptcy case.
"They took self-interested steps to seek an advantageous resolution of their disputes with the estate," lawyers for
Mr. Bharara, the U.S. attorney for the Southern District of New York, said in the filing. U.S. taxpayers still owned
about 7.3% of the Detroit auto maker as of Sept. 13, according to the Treasury Department's monthly report to Congress.
The settlement put an end to a long-running legal fight involving a payment old GM made to bondholders of the Nova
Scotia arm before GM's 2009 bankruptcy. After the deal was reached, lawyers for the creditors of GM's Nova Scotia unit--
a group that also includes Morgan Stanley ( MS ), Fortress Investment Group LLC ( FIG ) and the trustee for GM Nova Scotia's
bankruptcy estate--asked for $1.5 million of their professional fees to be paid for by old GM's estate. They argued that
the settlement ended "contentious, time-consuming, and expensive litigation that stood as one of the last remaining
obstacles to bringing these Chapter 11 Cases to a close."
The settlement, filed with the court late last month, cuts $1.13 billion in claims against the GM bankruptcy estate,
increasing possible payouts to unsecured creditors. The investors' fee request, which would cover just a portion of the
bill for their professionals, was negotiated as part of the settlement. Such fee requests for having made a "substantial
contribution" to a Chapter 11 case are becoming more common.
But Mr. Bharara said various arguments by the creditors--including that they initiated mediation and that the
settlement spared old GM's estate more fees--overlook the fact that they were negotiating on their own behalf to get the
best deal possible.
Lawyers for Paulson and the other investors didn't immediately respond to requests for comment Monday.
The bankruptcy court will consider the settlement and the fee request at an Oct. 21 hearing.
In 2012, a trust representing unsecured creditors of "old" GM sued the auto maker and the Nova Scotia creditors over a
2009 transaction that gave $367 million to four hedge funds, including those managed by Paulson and Elliott. The
settlement was intended to keep GM Canada out of bankruptcy. The hedge funds in June 2009 agreed to waive $1.3 billion
in claims in exchange for a $367 million payment. The payment came from GM Canada, which borrowed $450 million from old
GM to make it.
Two other well-known hedge-fund firms that were involved in the original transaction--David Tepper's Appaloosa
Management and Mark Brodsky's Aurelius Capital Management--sold their bonds and aren't involved in the dispute.
Lawyers for the trust had argued that the deal that gave the funds $367 million should be unwound under bankruptcy
law. If the payment was canceled by the court, it would have put the reorganized GM on the hook for at least $1.3
billion in claims.
(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to
Write to Joseph Checkler at email@example.com.
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