## Facts

- General Motors Corporation and affiliates filed chapter 11 in June 2009 amid severe losses and impending liquidity collapse.
- The United States Treasury provided DIP financing conditioned on consummating, on an expedited timetable, a sale of substantially all operating assets to a newly formed purchaser.
- The proposed transaction transferred most operating assets (including plants, brands, and intellectual property) to the purchaser in exchange for a package of consideration including cash, assumption of selected liabilities, and equity interests allocated among key constituencies.
- The estate retained many legacy obligations and contingent liabilities, including substantial unsecured and tort-related claims, to be addressed in the chapter 11 process.
- Numerous parties objected, including unsecured bondholders, tort and consumer claimant groups, asbestos claimants, and state attorneys general.
- After expedited evidentiary hearings, the court issued a written opinion approving the sale with clarifications and limitations on the scope of liability relief.

## Issues

1. Whether a sale of substantially all assets under 11 U.S.C. § 363(b) was supported by a sufficient business justification and necessity.
2. Whether the proposed transaction constituted an impermissible sub rosa chapter 11 plan that bypassed confirmation requirements under § 1129.
3. Whether the court could authorize a sale “free and clear” under § 363(f) that cut off specified successor-liability, tort, and other claims connected to pre-sale conduct.
4. Whether the structure and consideration improperly reallocated value among creditor groups in a manner inconsistent with bankruptcy priority rules at the sale stage.

## Decision

- The court approved the § 363(b) sale of substantially all assets to the purchaser.
- The court found the debtors demonstrated a sound business justification and that the sale was necessary to avoid near-term liquidation and preserve going-concern value.
- The court rejected the contention that the transaction was a sub rosa plan, reasoning that distribution of remaining estate value would still be addressed through the plan process.
- The court authorized the sale free and clear of specified liabilities and interests under § 363(f), including many claims characterized as connected with the transferred assets, subject to identified carve-outs and limitations.
- The court overruled most objections, while clarifying that claims based on the purchaser’s own post-closing conduct were not barred by the sale order.

## Legal Principles

- A pre-confirmation sale of substantially all assets under § 363(b) may be approved when the debtor articulates a compelling business justification, including imminent liquidity failure and the absence of feasible alternatives.
- A § 363 transaction is not barred as a sub rosa plan merely because it is transformative or affects stakeholder leverage; the key question is whether it dictates the terms of distribution of the debtor’s remaining estate or effectively supplants plan confirmation.
- Under § 363(f), “interest in property” may be construed broadly to permit a sale free and clear of certain claims and successor-liability theories tied to pre-sale assets or conduct, with claimants relegated to the estate and sale proceeds, subject to due process limits.
- Priority and allocation disputes over residual estate value generally remain for the plan-confirmation process, and a court may focus at the sale stage on value maximization and the best available alternative to liquidation.

## Conclusion

The court authorized an expedited § 363 sale of substantially all operating assets as the only realistic path to preserve value, rejected sub rosa plan and priority-based objections at the sale-approval stage, and permitted a broad free-and-clear transfer that eliminated many pre-sale liabilities while preserving claims based on the purchaser’s post-sale conduct.


In re General Motors Corp., 407 B.R. 463 (Bankr. S.D.N.Y. 2009)