Law on Rice

Since General Motors is expected to file for bankruptcy on Monday, I thought I should try to understand the nature of the pre-filing plans (especially since I missed the Chrysler filing). General Motors will restructure using a Section 363 sale, and the following is my understanding of how new and old General Motors will look after the bankruptcy.

In case you’ve been vacationing on the South Pole this weekend, it looks like a deal fnally got approved between General Motors’ bondholders and the Treasury. Thus, General Motors is expected to file for bankruptcy tomorrow, June 1, 2009. A historic moment–not only for General Motors, but for American capitalism.

Anyway, General Motor’s bankruptcy restructing will take the formof a Section 363 sale. I tried to find a Securities and Exchange Commission (“SEC”) filing this weekend to explain the precise events, but the most recent I could find was an 8-K from earlier this week. Fortunately, however, that filing gave me quite a bit of insight into the 363 sale–at least as it was intended before the weekend started.

These transactions can be a little complicated, so I made these sides to help myself understand:

Basically, a “New GM” entity (i.e., a new corporate entity) will be formed and capitalized by the Treasury, primarily.  Substantially all of the assets from “Old GM” will be transferred to New GM, and in return (the consideration) Old GM will get 10% of the equity of New GM (plus some warrants to buy more). Indeed, the 10% holding will be the only real asset held by Old GM, and the current debt stays put (to be sorted out in bankruptcy court, I presume).

In the 8-K, the bondholders were warned that if they declined the 10%, they would likely get nothing. Faced with a take it or leave it option, it appears the the bondholders took it.

The ABA Journal is reporting that a bankruptcy filing by General Motors will be far more complex than Enron, will tap out the restructuring professional labor market, and run up legal fees into the “hundreds of millions.” And I think I just found my independent study research topic for Fall 2009.

I’m happy to report that I got a beta (or, more like an alpha) version online at Bankruptcy Law Reports. It’s not pretty, but it works!

As I near the end of my law school career, it’s occurred to me that one of the the things I’ll miss most is the full boat access to online tools like Westlaw and Lexis. It seems to me that staying sharp on the law, which is changing as I write this, is one of the most important things I can do as a lawyer.

Not having these tools will make it harder and filling that gap personally is expensive. While information isn’t free, its cost in almost every other field is rapidly declining. Why not law?

So I’m filling the gap myself. I’m currently building a database to contain bankruptcy cases from select states around the country, starting with my home state of Arizona. It will be available at Bankruptcy Law Reports (.com). I think you’re going to like it.

This afternoon, I’m going to load up 2009’s cases from Arizona. I’ll let you know how it goes.

The good news is that I’m done with finals for the semester. The bad news is that the dean of my law school, Dean Testy, is leaving to head up the University of Washington. Good for her, bad for us I think.