Automotive suppliers can only hope that GM will make better cars than they do cure cost procedures. Based on the cure cost objections (“Cure Cost Objections”) filed, the procedures approved by the Bankruptcy Court either were flawed from the beginning or improperly executed. The net result is to cast a shadow on the entire contract assignment and assumption process pursuant to the proposed 363 sale to New GM. In the following post we discuss the problems experienced by suppliers. In a later post, we summarize the substantive objections that were filed and give a sampling of the differences between the GM cure costs and the Supplier cure amounts.
The Sale and Assumption Procedures Order – How It Was Supposed to Work
On June 2, 2009, the Court entered the Sale and Assumption Procedures Order (the “Order”), which included a procedure for “Objections To Cure Amount and Contract Assumption/Assignment”. GM was required to serve, within three (3) days after entry of the Order (the “Mailing Deadline”) [i.e. not later than 6/5/09] a copy of the Sale and Assumption Procedures Order upon the non-Debtor parties to the Assumable Executory Contracts; and were required to serve a notice of the assumption and assignment of the Assumable Executory Contracts and the proposed cure amounts relating to the Assumable Executory Contracts (the “Assumption and Assignment Notice”) upon the non-Debtor (the “Suppliers”) parties to the contracts.
The Order also required GM to maintain a secure website (the “Contract Website”) that the Suppliers could access to find current information about the status of its respective Executory Contract or Lease. GM was required to provide instructions for accessing the information on the Contract Website relating to the Supplier Assumable Executory Contracts and (ii) the procedures for objecting to the proposed assumption and assignment of the Assumable Executory Contract.
The Suppliers had 10 days to object to the Assumption and Assignment Notice, including the cure cost amounts. Objections had to be filed with the Bankruptcy Court and served on or before June 15, 2009.
Supplier Objections and Frustrations
On their face, the procedures seemed reasonable. Implementation, from the Supplier perspective, was a disaster.
First, there was no way for Suppliers to find out which of their supply contracts (if any) were on the list to be assumed and what was GM’s cure cost until they got the Assumption and Assignment Notice that included a login name and password. While the notices purportedly went out on June 5, 2009, the Cure Cost Objections often recite that the notices were not received by the supplier until June 10 or later. Several recite that the notices were not received until June 12 or even later. In some instances the objections recite that the notices were not received until the day the Supplier objections had to be filed and served i.e. June 15. In at a few instances the Supplier only received the notice after the deadline. Finally, some suppliers are still waiting to receive their notices. (See as examples of these problems objections of Cummins, Inc., Etkin Management Services Inc, Mold Masters Co, AVL Americas, Inc, AVL Powertrain Engineering, Inc.)
Shanghai Automotive Industry Corporation (Group) and their affiliates filed an objection noting that they were advised by phone that their notice had been sent:
via United States Postal Service, on June 5, 2009, to “Shanghai Automotive Industry Group” at “18 Hexi Road, China.” Likely as a result of the incomplete and incorrect address stated above, and the fact that such Notice of Intent was sent by regular mail, none of the SAIC Parties have received the Notice of Intent. Counsel for the SAIC Parties has requested the GM Call Center and GM’s counsel to provide immediate electronic copies of the Notice of Intent. These requests were denied or were not acknowledged.
For suppliers contacting GM to request assistance, there was apparently no way to provide the suppliers the login and password. Several suppliers filed objections noting that while they still had not received their notice and could not access the website they were still objecting in order to preserve their rights.
Numerous suppliers, who did receive notices, received them so late as to make it impossible to prepare anything other than a generic objection. Getrag Transmission Corporation’s objection is fairly typical for Suppliers who simply did not have enough time to respond. Getrag received its notice on June 12, 2009 and objected: “Without having had sufficient time to complete its analysis, Supplier cannot determine whether the Cure Amounts are adequate.”
The second major problem for Suppliers related to the information posted on GM’s website. The chief problem was that GM continued to change the cure amounts and assumed contracts even after the Assumption and Assignment Notices had been sent out. Dow Chemical Company, in its objection, stated “The Dow Cure Cost listed on the Website is constantly in flux… .” Hitachi, Ltd. noted in its objections that:
[T]he information contained on the Contract Website is constantly changing and has not stabilized, therefore making it impossible for Hitachi to accurately reconcile the Cure Amount or know the exact Cure Amount that the Debtor is proposing to pay on account of the assumption and assignment of the Hitachi Contracts to the Purchaser.
Lear Corporation also made a similar observation: “The website lists approximately 8,400 purchase orders with Lear that Debtors claim may be assumed. Additionally, there are 1,651 lines of cure amount details for these contracts (as of the date of this filing) with the numbers changing often.” [Emphasis added]
For Suppliers, this meant that the GM Website had to be constantly reviewed to determine if there had been further changes. A number of Suppliers did print screen attachments to their objections to document what notice there were objecting to.
The third problem for Suppliers was simply that the Website sometimes did not work properly. LG Electronics stated: “LGE is informed by the Debtors that there have been logistical problems with some entries on the website, and has been attempting to work with the Debtors to ascertain the cure amount proposed by the Debtors for the Assumed Contracts.”
Finally, the GM Website often failed to provide sufficient information to allow the Supplier to determine if the cure costs were sufficient. The primary deficiency was in the identification of assumed contracts.
What Notice Did the Supplier Agree To?
The impact of these failures is to cast a shadow on the entire Supplier contract assumption and assignment process.
Those Suppliers who did not file an objection at all may have the best argument – they never were provided the notice of assignment as required by the Order and did not agree to a contract assignment or the GM cure amount. For those suppliers the question will be whether the supplier was provided reasonable notice. GM is going to have to sustain its burden of proof that reasonable notice was provided and with all the notice delivery problems, that burden may be difficult to carry.
The far bigger problem is the fluctuation in cure amounts and list of assumed contracts during the cure objection period. A supplier checking the GM Website on June 10, 2009 might conclude that the GM cure cost is sufficient and that the contract listing is accurate. The Supplier was only required to object if it disagreed with the cure notice. The Supplier does not object. GM subsequently adjusts the cure amount or added or subtracted from the list of assumed contracts. What Notice did the Supplier receive and what did the Supplier agree to?
Simply, can GM prove what notice of cure amount the Supplier agreed to when GM kept changing the Website after the Notices were sent out? If not, what validity does the entire assumption and assignment cure process have as to the hundreds/thousands of Suppliers who did not file cure cost objections?
The more fundamental question may be whether GM complied with the Order. The date of the Notice was June 5, 2009. If the cure amounts on the Website that were incorporated into the notice were changing after June 5, was the Notice date accurate? Did GM provide notice of cure amounts on or before June 5 as the court Order required?
Although the deadline for filing objections was the 15th, cure cost objections continue to be filed. Between June 16 and June 20 an additional 75 cure objections were filed. Some of the objections state that they are filing an objection even though the Supplier sill has not received an Assumption and Assignment Notice. For those who did receive a notice, some objections explain the reason for the late filing, while others do not. Several of these apparently late filings reflect huge cure cost differences. Falcon Transport Co. claims a cure amount in excess of $16 million while the GM cure cost is around $9 million. Comprehensive Logistics shows a cure amount of $7.6 million while GM is at $2 million. With these kinds of numbers involved, a hard line stance by GM on the cure objection deadline surely is going to provoke a dispute.
A couple of the late filings state that the Debtor gave an extension. This presents an interesting question as to whether GM can unilaterally wave the deadline given that the Order does not give the Debtor that authority.
The Lesson for Suppliers?
For Suppliers there is only one lesson: In a bankruptcy that is as large and as fast moving as GM’s, constant vigilance is required. Assumptions that the process is going to function properly may prove untrue with costly consequences. Even now, Suppliers who filed objections or who chose not to file objections based on a snapshot review of the GM Website, should go back to the Website and recheck the list of assumed contracts and cure amounts.
For more post on the GM Bankruptcy, click the Filed under General Motors Bankruptcy link below.