GM moves closer to swift Chapter 11 exit

updated 9:12 a.m. ET July 8, 2009

NEW YORK - The sale of most of General Motors' assets is moving closer to completion, after a bankruptcy judge denied motions by groups with asbestos and injury-related claims seeking to halt the sale and appeal directly to the 2nd Circuit Court of Appeals.

The sale remains scheduled to close by July 10.

On Tuesday, a group representing people with product liability claims filed a motion asking that their appeal of U.S. Judge Robert Gerber's approval of GM's asset sale plan be fast-tracked to the 2nd Circuit Court of Appeals, skipping district court.

In addition, a group representing people with asbestos-related claims against the automaker filed a motion asking that GM's sale be put on hold until their appeal can be heard by a federal district court judge.

Gerber refused both motions Tuesday evening. In a detailed written ruling, Gerber said he denied the request for a stay of the sale because he saw no "substantial possibility" that the groups would prevail at the 2nd Circuit, given how that court previously ruled on Chrysler's similar sale.

Gerber also pointed to the government's pledge to cut off funding to GM if the sale isn't approved by Friday, which would force GM to liquidate. The Treasury Department is expected to provide about $50 billion in aid to the automaker.

"We simply don't have the luxury of letting GM languish in bankruptcy while an appellate court considers the issues the Tort Litigants and Asbestos Litigants want to raise," Gerber wrote.

Objectors to GM's sale still have until noon Thursday to file appeals. After that, the sale will be free to close at midnight.

Late Sunday, Gerber approved Detroit-based GM's plan to sell the bulk of its assets to a new government-controlled company as part of its plan to quickly emerge from Chapter 11 protection. The product liability and asbestos groups filed their appeals the next day.

Gerber's Sunday ruling followed a three-day hearing that wrapped up last Thursday. GM and government officials had urged a quick approval of the sale, saying it was needed to keep the automaker from selling itself off piece by piece.

The product liability group objected to parts of the plan that would free the "new GM" from liability for people injured by a defective GM product before June 1.

Steve Jakubowski, an attorney for that group, had argued that GM's case should be allowed to take the same path as fellow automaker Chrysler LLC, where appeals of that company's sale were sent directly to the 2nd Circuit. He added that if the sale goes through as structured, people with affected claims will have little reason to keep pursuing them because the potential damages they would be able to recover would be so minimal, he said.

But GM Attorney Harvey Miller argued that sending the appeal straight to the 2nd Circuit would be an extraordinary measure that just isn't warranted in this case, given that the same issues were already decided by the appeals court in the Chrysler case.

Miller also said that granting the stay requested by the asbestos group could cause GM's assets to "go down in flames" and result in no recovery for any of the company's stakeholders.

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