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Bankruptcy Court Allows $13 Million Secured Claim But Declines to Direct Immediate Payment

By GianClaudio Finizio

On January 30, 2015, Chief Judge Brendan Linehan Shannon of the United States Bankruptcy Court for the District of Delaware (the “Court”) granted, in part, the motion (the “Motion”) of General Motors LLC (“GM”) to compel immediate payment of GM’s first priority secured claim against the debtor, TPOP, LLC f/k/a Metavation, LLC (the “Debtor”).   The Motion sought to (i) confirm GM’s contractual right to payment of GM’s first priority secured claim in the amount of $13,295,175 (the “Claim Amount”), and (ii) compel immediate payment of the Claim Amount.

By way of background, within days after filing its chapter 11 petition, the Debtor, certain affiliates, and the Debtor’s major customers entered into an Automotive Sale Transactions Support Agreement (the “Agreement”).  The Agreement provided that the Debtor and certain related businesses would be sold while GM and Chrysler Group, LLC would provide financing to support operations until the sale closed.  If the Debtor complied with its obligations under the Agreement, GM agreed to forgo repayment of its loans.  At the time of the Motion, the sale of the businesses had been completed and the Claim Amount was being held in escrow.

Relying on the unambiguous language of the Agreement and the uncontested evidence that an event of default had occurred, the Court concluded that, because the absence of an event of default was a condition precedent to GM’s obligation to forgive its loans, GM rightfully had an allowed claim for the Claim Amount.  While the Court acknowledged the Debtor’s argument that GM received a substantial benefit as a result of the Agreement in the way of the continued flow of parts, the Court could not look beyond the parties’ clear intention to structure the transaction as a loan and, in so doing, rewrite the parties’ contract.

Having determined that GM had an allowed claim, the Court next turned to whether GM was entitled to immediate payment of the Claim Amount.  In support of its argument for immediate payment, GM cited to other cases in the jurisdiction in which a secured creditor’s collateral was distributed to a secured creditor outside of a plan where such distribution did not impact the debtor’s reorganization.  The Court, however, declined to direct immediate payment finding those cases distinguishable, because the claims upon which immediate payment was sought were either undisputed or were adequately protected.  In this instance, the Debtor objected to immediate payment and intended to assert affirmative defenses, set-offs, or counterclaims that may have reduced the Claim Amount.

A copy of the Court’s opinion is available here.

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