Most Kentucky business that are contemplating bankruptcy assume that filing the petition will invoke an automatic stay and protect them from pending lawsuits. In a case that may have implications for business bankruptcies in Kentucky and across the country, the United States Supreme Court declined to review a decision of the Second Circuit Court of Appeals that held that General Motors was not protected from product liability suits because it withheld critical information from the bankruptcy court.

The bankruptcy involved hundreds of lawsuits alleging that General Motors knowingly sold automobiles with defective ignition switches. The switches contained a defect that permitted them to unexpectedly turn from “run” to “off” or “accessory,” shutting off the engine and causing airbags and power-assisted steering to cease operating. GM argued that the bankruptcy sale allowed it to purchase the assets of pre-bankruptcy GM “free and clear” of all liabilities.

The court of appeals rejected GM’s argument because it found that GM knew about the defect for at least a decade but kept its existence hidden from customers and the court. The ruling now allows hundreds of individual products liability suits seeking damage for personal injury and wrongful death to go to trial.

The significance of the case lies in the findings of willful concealment of the defective condition of the switches. A debtor who conceals relevant information from the bankruptcy court can expect to be harshly punished if the deceit comes to light. Anyone who is considering filing a bankruptcy petition and who has questions about the information that must be disclosed to the court and creditors may wish to consult an experienced bankruptcy attorney for advice on completing the exhibits and providing information to the court.

Source: Forbes, Supreme Court Leaves GM Vulnerable To Pre-Bankruptcy Ignition Suits Daniel Fisher, April 24, 2017