Error in JPMorgan loan to General Motors settles for $231 million

Lenders and hundreds of investors agreed to pay $231 million to put an end to their decade-long legal battle over a clerical error in a $1.5 billion loan to General Motors which was administered by JPMorgan Chase, according to court documents.

The settlement payment will be an advantage to the unsecured creditors of General Motors’ 2009 bankruptcy, along with the U.S. and Canadian governments, that helped finance GM’s Chapter 11 case.

The unsecured creditors, who collected some money from the automaker’s bankruptcy, have been attempting for years to recoup some of the $1.5 billion that were paid to the automaker’s secured lenders.

The $1.5 billion loans was syndicated to hundreds of investors that were defendants in the lawsuit. The individual settlement contributions by JPMorgan, a law company that managed the paperwork and the investors in the loan were not revealed in court documents.

JPMorgan refused to comment.

The dispute originated from the unintentional release of a lien on the automaker’s equipment because of a paperwork error.

At the end of 2008, the automaker was planning to pay off a $300 million financing. The law firm managing the paperwork accidentally included a lien that secured the $1.5 billion loan in the list of security interests it terminated following the repayment of $300 million.

Releasing the lien rendered part of the loan unsecured, permitting a trustee working for unsecured creditors of the automaker to attempt to claw the money back.

The error did not invalidate all liens securing the $1.5 billion loan, and the parties have spent enough time disputing if automaker’s assets such as robots and conveyor belts secured loan.

General Motors’s predecessor filed for bankruptcy in 2009, beset by a deep U.S. recession, an extensive debtload, high labor costs, and outdated car models.