Two small bondholders sue GM over bankruptcy

By Emily Chasan

NEW YORK (Reuters) - A Connecticut accounting professor and his wife are taking on General Motors Corp's GMGMQ.PK plan to sell its assets in bankruptcy court, treading in an area that major investors and hedge funds have so far avoided.

The two, who are representing themselves and say they hold $400,000 of General Motors Corp debt, filed the suit on June 16 in U.S. bankruptcy court in Manhattan.

In court papers prepared without the help of a lawyer, Radha Ramana Murty Narumanchi and Radha Bhavatarini Devi Narumanchi of New Haven, Connecticut, said they were among the "voiceless and defenseless casualties and victims" being hurt by GM's plan to sell itself to the government.

The couple estimated about 210,000 U.S. households that hold GM debt could "lose their shirts" in the GM bankruptcy.

The 100-year-old automaker filed for bankruptcy earlier this month, with a fast-track plan to sell itself to a "New GM" that would allow a much smaller company, owned by the U.S. and Canadian governments, GM's union and its unsecured creditors, to emerge from court protection in as little as 60 days. Under GM's sale plan bondholders could receive about 10 percent of the new General Motors.

There are other dissident bondholder groups, calling themselves "Main Street Bondholders" and "GM Bondholders Unite," that have also been trying to organize objections to GM's sale plans.

The Narumanchis said in court documents that they were seeking to head off "the loss we would suffer if the bankrupt GM is allowed to sell all its crown jewels to a 'good GM' headed by the U.S. Treasury, leaving all trashy, and worthless trinkets, to a 'bad GM,' to the detriment of unsecured bondholders."

The Narumanchis, using the "zone of insolvency" principle that suggests directors should pursue the interests of their debtholders rather than shareholders when the company is near insolvency, said they are seeking a declaratory judgment that GM has been insolvent since 2006.

They are also seeking a declaratory judgment that the intervention of the U.S. Treasury "deepened and prolonged the insolvency of GM, to the detriment of unsecured bondholders."

The couple also asked for a trustee to run GM and an official committee to be appointed to represent the interests of family bondholders.

"The Obama administration is asking these low and middle income houses to make 100 percent sacrifices and become paupers, in the name of saving just high priced 60,000 jobs of GM workers," the Narumanchis wrote in the complaint, saying they felt the GM workers were doing better than the bondholders because of political ties.

Mr Narumanchi, an accounting professor at Southern Connecticut State University, has brought several such lawsuits in the past, with some proceeding through various appeals.

According to court records, the Narumanchis have been acquainted with the bankruptcy process personally, as Connecticut court documents show a personal Chapter 7 filing by the couple in 1997.

The case is In re: General Motors Corp, U.S. Bankruptcy Court, Southern District of New York, No. 09-50026.

(Reporting by Emily Chasan; Editing by Gary Hill)