Joel R. Glucksman
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GMAC’s Residential Capital is one of the most recent financial services companies to file for bankruptcy after a period of economic hardship. However, creditors in ResCap bankruptcy insist that Ally Financial is on the hook for much of the company’s liabilities, Dow Jones Newswires reports.
In a recent filing with the U.S. Bankruptcy Court in Manhattan, Ally claims ResCap’s choice to sue for between an estimated $20 billion and $25 billion in such liabilities is “premature” and will be difficult for the creditors to win.
“The Committee cannot come close to alleging in good faith, must less establishing, the facts necessary to pierce the veil,” Ally said in its filings, according to the news source.
Ally previously offered to pay nearly $750 million to the troubled financial firm’s bankruptcy estate. However, this settlement was never consummated. ResCap is now seeking a larger amount of damages under the theory of “veil piercing.” Under bankruptcy law, this means Ally and ResCap are alleged to have acted as a single economic unit in which the subsidiary is only utilized to benefit the parent company.
“To read the Committee’s motion, one would think that ResCap never existed–that it never had over 14,000 employees, that it never had over $130 billion in assets,” Ally continued, according to Dow Jones Newswires.
Experts and creditors close to the lawsuit say negotiations between Ally Financial and ResCap are still on-going, but it is not yet apparent if the parties will be able settle and avoid further litigation. An official hearing on the matter is expected in the near future.
If the court found that Ally owes a considerable amount of money to ResCap, it could be very damaging to the company, the Wall Street Journal reports. Roughly three-quarter of Ally Financial is currently owned by the U.S. government and any additional financial setbacks could be detrimental to its outlook.
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