This week, we’re told, we’ll (finally) see General Motors seek creditor protection  — though that phrase ought to be retired along with various other assumptions about the methods and ethics of commerce. GM, and Chrysler, could have given creditors and bondholders a fair shot at recovery by filing for bankruptcy last fall, or last winter.

Instead, these automakers accepted federal (that is, our) money to keep on going, promising to work out a reorganization plan. That plan, apparently, was to take so much government cash that the federal administrators could direct the reorganization process.  

GM and Chrysler are government-owned entities now: the government fired GM’s CEO; it gift-wrapped Chrysler Corp. for a rival manufacturer. Now, the government is ready to invest billions more in GM. Would GM's and Chrysler's creditors and bondholders have been willing to sell their claims to the federal government last fall if they’d known this was the plan? Of course, the federal regulators and their supporters don’t want to pay the creditors and bondholders — they want to intimidate them into going away entirely.
 
Bankruptcy, of the “creditor protection” variety, is the last recourse for companies that cannot reconcile their assets with their financial obligations. GM and Chrysler, and their new regulators, have found a new last recourse.

Chapter 11 was never meant to be a refuge from creditors; it was meant to be a legal, transparent method for creditors to receive some reasonable restitution, and to allow the debtor to remain operative, so that it might continue to perform the activity that was its main purpose.

In recent years we’ve seen a different approach: the pre-packaged bankruptcy. Debtor companies work out the terms of their debt payment and reorganization with creditors and bondholders before going to court, to give the claim respectability and credibility. Then, they file a plan that the court can use to implement the restructuring quickly. It usually leads to some asset sales, and some new ownership, but no one is deceived or cheated.

Among metalcasters, J.L. French and Citation Corp. have taken this approach.  

It happened again this week with diecaster Metaldyne. It has worked out its strategy with specific creditors, who will become the new owners of various Metaldyne assets in the near future. Metaldyne’s parent company, metalcaster Asahi Tec, has agreed to these developments. Everything is transparent.

That reason for these different routes, apparently, has been that certain interests have shown a determination to drag out the court-directed process, making it an ungainly approach for creditors and debtors alike. It’s the fairness, the transparency, of the “creditor protection” process that these groups seem to find objectionable.  It’s not necessary to point fingers, but it’s plain that some creditor organizations don’t feel confident about their chances for recovery from a fair reorganization process. And they have the influence to get what they want now from GM and Chrysler.   

We know that the Chapter 11 reorganization process can be fair for debtors and creditors; with willing and committed investors, it may work out well for Metaldyne.

The same cannot be said about GM or Chrysler with the process they’re taking now.