US govt tells GM to prepare for bankruptcy by June 1

WASHINGTON/NEW YORK: The US Treasury Department has told General Motors to make all necessary preparations for a possible bankruptcy filing by June 1, even though the troubled automaker insists it can restructure its business on its own, The New York Times reported late Sunday.

Citing unnamed people "with knowledge of the plans," the newspaper said the instructions had been conveyed by members of President Barack Obama's automotive task force, who spent last week in meetings and on conference calls with GM in Detroit and Washington.

The talks are expected to continue this week, the report said.

According to the paper, the goal is to prepare GM for a fast "surgical" bankruptcy.

Meanwhile, the automaker's bondholders are preparing legal arguments against the automaker's bankruptcy plan, the Wall Street Journal reported, citing people familiar with the matter.

The Journal said bondholders are worried that the process will push them to accept hefty losses on their investments. It said members of an ad hoc committee representing GM bondholders have made their concerns known to the Obama administration's task force.



The lead attorney representing the bondholders' committee declined to comment to Reuters on the matter.

Ratings agency Standard & Poor's last week cut certain debt ratings of GM and Chrysler Holding LLC, citing lower likelihood of recovery by their debtors in the event either carmaker defaults on the loans or files for bankruptcy.

In a separate article, the paper reported that GM faces a lawsuit in Canada from unsecured bondholders over dividends GM paid from a Nova Scotia unit last May to its U.S. operations.

The bondholders claim the company wrongfully pulled around $600 million from the Canadian subsidiary because company officials should have known the U.S. business was near insolvency, according to the Journal.

GM has said in court filings that the allegations are false and that it was acting within its rights, the report said.

A GM spokeswoman was not immediately available to comment.