Joel R. Glucksman
December 20, 2012
Ally Financial, the parent of bankrupt company Residential Capital, has done its best to distance itself from its insolvent offspring, but ResCap’s creditors have failed to make the necessary distinction between the two entities.
Ally Financial has been involved in several sales of international businesses as of late, in an effort to repay the $17.2 billion in government financing that it received through the Troubled Asset Relief Program. This includes selling operations in Europe, Latin America, Canada and Mexico. However, ResCap creditors are arguing that ResCap should receive a stake in the asset sale proceeds before Ally repays the funds to the government, according to Dow Jones Newswires.
While Ally itself is not involved in ResCap’s Chapter 11 case, creditors argue that the parent company reclaimed valuable assets from ResCap prior to its filing for protection under bankruptcy law
. In response, Ally noted that Ally and ResCap are two different entities, and that creditors do not have the legal right to require
the former to make payments for the latter’s financial issues.
While Ally has raised roughly $9.2 billion in the sales of various assets and operations, creditors are focusing on a particular transaction involving the company, in order to make their claims, the news source reports. The company transferred Ally Bank from its mortgage servicing arm to the parent company in 2009, a move that creditors say stripped ResCap of significant assets and value, the Dow Jones reports. As a result, a court-appointed examiner is reviewing the terms of the transactions to determine if the creditors’ arguments are deemed valid.
The company offered a $750 million settlement with ResCap to remove itself from future liabilities involving the bankruptcy, but many creditors have argued that this amount is insufficient.