Wednesday, April 22, 2009

Apparently the Michigan AG Had Some Extra Time

I ran across this article from today's Detroit Free Press:

April 22, 2009
Cox to automakers: File bankruptcy in Michigan


Michigan Attorney General Mike Cox has urged chief executives of General Motors Corp. and Chrysler LLC to consider filing for bankruptcy in Michigan rather than Delaware or New York because it would be more convenient for creditors in Michigan.

“I am gravely concerned about the impact of any bankruptcy filing in a jurisdiction outside Michigan,” Cox wrote in separate letters to GM CEO Fritz Henderson and Chrysler CEO Bob Nardelli.

Cox goes on to say that the financial health of both companies and Michigan have been intertwined for

PDF: Cox's letter to GM
PDF: Cox's letter to Chrysler

The state is a significant creditor for each of the troubled automakers through the Michigan Business and Single Business Tax obligations, workers’ compensation claims, unemployment insurance and environmental regulations.

“The costs for many of these creditors (in Michigan) to participate in a New York or Delaware bankruptcy is overwhelming and would undoubtedly lead to unjust bills,” Cox said.

“It’s easier for those people to get in line, if it’s here,” said John Selek, a spokesman for the attorney general.

While Cox does not say that either company should file for bankruptcy, neither does he acknowledge that they might not need to if they meet certain criteria set by the U.S. Treasury Department.

“If you ultimately decide to choose bankruptcy as the vehicle to a stronger (company), I respectfully ask that you and your representatives meet with me before any filing is made,” the letter concludes. “Please feel free to contact me at any time, day or night, to discuss this matter.”

Contact GREG GARDNER at 313-222-8762 or at

The letter to GM states "The financial health of General Motors and Michigan has been intertwined for decades. Accordingly, any potential bankruptcy filing outside the State of Michigan seems bizarre."

Similarly, the letter to Chrysler states "The financial health of Chrysler and Michigan has been intertwined for decades. Accordingly, any potential filing outside the State of Michigan seems bizarre ..."

Apparently, the Attorney General of Michigan cares more about his convenience and the convenience of the automakers' Michigan suppliers than he does about GM or Chrysler's best interests.

GM is incorporated in Delaware (I believe that is also the domicile of Chrysler) and has a significant presence in New York (where, I believe, the vast majority of their creditors are also based), so characterizing the idea of a potential bankruptcy filing in those states is far from "bizarre."

It is my understanding that filing in Michigan would be disadvantageous to any company relative to Delaware and New York (both of which have bankruptcy and federal courts with deep experience and clear precedents for large bankruptcies).

I found the item interesting and thought you might as well.

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1 comment:

Lawrence D. Loeb said...

By the way, as GM and Chrysler's executives live and work in Detroit, filing in Michigan would be more convenient for them as well.

Unfortunately, convenience is not a good basis to determine where a filing should be made.

Fortunately, telecommunications advances and the formation of committees to represent creditors in bankruptcy proceedings could minimize the inconvenience to Michigan creditors - if either or both of GM and Chrysler find it necessary to file bankruptcy outside of Michigan.