ABI Bankruptcy Brief Government Losses Pile Up from Auto Industry Bailout

ABI Bankruptcy Brief | December 10, 2013

December 10, 2013

NEWS AND ANALYSIS

TELECONFERENCE RECAPS ABI'S CHAPTER 11 REFORM COMMISSION'S EFFORTS IN 2013, STEPS FORWARD IN 2014

Listen to the recording of yesterday's media teleconference featuring a recap of ABI's Commission to Study the Reform of Chapter 11 activities in 2013 and a preview of the next steps for the Commission's final report at the end of in 2014. Commission Co-Chairs Robert J. Keach and Al Togut were joined by Prof. Michelle Harner to discuss the Commission's efforts. The moderator for the teleconference was ABI Resident Scholar Kara Bruce. Click here to listen to the recording.

GOVERNMENT LOSSES PILE UP FROM AUTO INDUSTRY BAILOUT

The Treasury Department announced yesterday that the government has sold its remaining shares of General Motors (GM) and that losses from the 2009 auto industry bailout total about $15 billion, FoxNews.com reported today. Treasury officials said the government has recovered about $39.9 billion of the $49.5 billion earmarked for GM under the Troubled Asset Relief Program (TARP) approved by Congress as the company teetered on the brink of bankruptcy nearly five years ago. In exchange for the bailout, the government received $2.1 billion in preferred GM stock and a 60.8 percent equity stake in the company. Treasury has intermittently sold its shares of GM but always at a price below that which would have allowed the government to break even on the deal, which accounts for the nearly $10 billion in losses. The government has lost an additional $1.3 billion on its bailout to Chrysler, a Treasury official said. Read more.

COMMENTARY: HOW GENERAL MOTORS WAS REALLY SAVED

Five years after an unprecedented government equity investment, General Motors is thriving and the Treasury yesterday sold its remaining shares, according to a Forbes Magazine commentary today by Jay Alix, founder of AlixPartners and who helped advise on GM's turnaround. The real GM turnaround story, significant in saving the auto industry and the economy, is contrary to the one that has been published, according to Alix, saying that the plan that was developed, implemented and then funded by the government was devised inside GM well before President Obama took office. For a global company as big and complex as GM, a "normal" bankruptcy would tie up the company's affairs for years, driving away customers, resulting in a tumultuous liquidation, according to Alix. Before the companies had filed for bankruptcy, Alix in 2008 proposed that GM split into two very separate parts before filing: "NewCo," a new company with a clean balance sheet, taking on GM's best brands and operations; and "OldCo," the leftover GM with most of the liabilities. All of the operational restructuring to make the new company profitable would also occur before a bankruptcy filing so GM could go through bankruptcy in a matter of days -- not months or years with creditors and other litigants fighting over the corporate carcass while the revenue line crashes. Read the full commentary.

ANALYSIS: AEON FINANCIAL FLIES UNDER REGULATORY RADAR FOR DEBT COLLECTION

Aeon Financial, the firm that threatened to foreclose on thousands of struggling homeowners in Maryland, Ohio and Washington, D.C., is a mystery: It lists no owners, no local office, no Web site, according to an analysis in Sunday's Washington Post. Aeon Financial is incorporated in Delaware, operates from mail-drop boxes in Chicago and is represented by a law firm with an address at a 7,200-square-foot estate on a mountainside near Vail, Colo. Yet no other tax lien purchaser in the District has been more aggressive in recent years, buying the liens placed on properties when owners fell behind on their taxes, then charging families thousands in fees to save their homes from foreclosure. Aeon has been accused by the city's attorney general of predatory and unlawful practices and has been harshly criticized by local judges for overbilling. All along, the firm has remained shrouded in corporate secrecy as it pushed to foreclose on more than 700 houses in every ward of the District. Aeon's story underscores how an obscure tax lien company -- backed by large banks and savvy lawyers -- can move from city to city with little government scrutiny, taking in millions from distressed homeowners. The firm came into the District eight years ago with hardball tactics, sending families threatening letters and demanding $5,000 or more in legal fees and other costs, often more than three times the tax debt. Read more.

TOMORROW'S ABILIVE WEBINAR LOOKS AT HOW TO HIRE THE RIGHT FINANCIAL ADVISORS

ABI's Financial Advisors & Investment Banking Committee is proud to present the next abiLIVE webinar, "How to Hire the Right Financial Advisors," on Dec. 11 from 1-2:15 p.m. ET. The program will provide attendees with an overview and basic understanding of the different types of financial advisors that may be relevant for in- and out-of-court cases. Topics include:

- The different types of financial advisors available;
- The benefits and limitations for each category of advisor; and
- How to select the right advisor for the job.

Speakers on the webinar include:

-Daniel F. Dooley of MorrisAnderson (Chicago)

-Gregory S. Hays of Hays Financial Consulting LLC (Atlanta)

-Ivan Lehon of Ernst & Young (New York)

-Allen Soong of Deloitte CRG (Los Angeles)

-Teri Stratton of Piper Jaffray & Co. (El Segundo, Calif.)

Registration is $75 for ABI members/$175 for non-members. Have a number of colleagues that would like to participate? Take advantage of group pricing for ABI members: register 5 or more and the registration cost drops to $60 per person!

Click here for more information and to register.

NOW AVAILABLE FOR PRE-ORDER: BEST OF ABI 2013: THE YEAR IN CONSUMER BANKRUPTCY

Now available for pre-order in the ABI Bookstore is Best of ABI 2013: The Year in Consumer Bankruptcy. This must-have reference contains the best ABI Journal articles and papers from ABI's top-rated educational seminars selected by ABI Board Member Alane Becket of Becket & Lee LLP (Malvern, Pa.) to cover the most important developments in consumer bankruptcy for 2013. The book delves into such timely topics as the foreclosure crisis, tax issues, the latest on chapter 13, student loans and much more, and it also features relevant case summaries drawn from ABI's Volo site (volo.abi.org). Make sure to log into www.abi.org to get your discounted ABI member pricing. The book will ship in mid-December. Click here to order.

ABI IN-DEPTH

RENEW YOUR ABI MEMBERSHIP BY DEC. 31 AND SAVE!

Beginning in January 2014, ABI will institute its first dues increase to the regular dues rate in six years. The $20 increase will ensure that ABI can continue to provide you with the latest and most effective tools available in insolvency information and education. You can lock in 2013 rates, and additional discounts, for up to three years by using a multi-year renewal option (save $75!). You can also save 10 percent on future dues by opting into the automated dues program. To renew your membership and save, please go to renew.abi.org.

ABI LAUNCHES SIXTH ANNUAL WRITING COMPETITION FOR LAW STUDENTS

Law school students are invited to submit a paper between now and March 4, 2014 for ABI's Sixth Annual Bankruptcy Law Student Writing Competition. ABI will extend a complimentary one-year membership to all students who participate in this year's competition. Eligible submissions should focus on current issues regarding bankruptcy jurisdiction, bankruptcy litigation, or evidence issues in bankruptcy cases or proceedings. The first-place winner, sponsored by Invotex Group, Inc., will receive a cash prize of $2,000 and publication of his or her paper in the ABI Journal. The second-place winner, sponsored by Jenner & Block LLP, will receive a cash prize of $1,250 and publication of his or her paper in an ABI committee newsletter. The third-place winner, sponsored by Thompson & Knight LLP, will receive a cash prize of $750 plus publication of his or her paper in an ABI committee newsletter. For competition participation and submission guidelines, please visit http://papers.abi.org.

NEW CASE SUMMARY ON VOLO: SAPERE WEALTH MGMT LLC V. MF GLOBAL HOLDINGS LTD. (In re MF Global Holdings Ltd.) (2ND CIR.)

Summarized by Weston Eguchi of Willkie Farr & Gallagher LLP

Affirming District Court's judgment, dismissing Appellants' appeal from the Bankruptcy Court's order for lack of jurisdiction on the basis that the Bankruptcy Court's order was interlocutory rather than final, because it did not foreclose Appellants' ability to continue to assert a priority right to distributions under chapter 11. The Second Circuit relied on prior case law holding that an order was interlocutory where it contained expressions of non-finality and contemplated significant further proceedings to determine the rights of parties.

There are more than 1,000 appellate opinions summarized on Volo, and summaries typically appear within 24 hours of the ruling. Click here regularly to view the latest case summaries on ABI's Volo website.

NEW ON ABI'S BANKRUPTCY BLOG EXCHANGE: BEING FULLY SECURED MAY NOT BE A COMPLETE DEFENSE

The Bankruptcy Blog Exchange is a free ABI service that tracks more than 80 bankruptcy-related blogs. A new blog post, looking at the case of Gladstone v. Bank of America, N.A. (In re Vassau), 499 B.R. 864 (Bankr. S.D. Cal. 2013), concluded that, as a general principle, a creditor that is fully secured is not concerned about potential preference claims (since it would have been entitled to full payment in a chapter 7 proceeding, and thus one of the elements of a preference claim is not met). However, this case illustrated that the analysis may be more complicated if there are junior secured creditors.

Be sure to check the site several times each day; any time a contributing blog posts a new story, a link to the story will appear on the top. If you have a blog that deals with bankruptcy, or know of a good blog that should be part of the Bankruptcy Exchange, please contact the ABI Web team.

ABI Quick Poll

Electricity qualifies as a "good" entitled to administrative expense status under § 503(b)(9).

Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.

INSOL INTERNATIONAL

INSOL International is a worldwide federation of national associations for accountants and lawyers who specialize in turnaround and insolvency. There are currently 43 member associations worldwide with more than 9,000 professionals participating as members of INSOL International. As a member association of INSOL, ABI's members receive a discounted subscription rate. See ABI's enrollment page for details.

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