Judges hate when litigants hide things from them, especially bankruptcy judges. Judge Robert E. Gerber is a United States Bankruptcy Judge for the Southern District of New York. Gerber oversaw the GM managed bankruptcy (bailout) and is now hearing a lawsuit which may overturn a big part of the the deal. As you may remember, the bailout involved the liquidation of the “old” GM and the creation of a new one.

Now a lawsuit filed by a trust representing “old” GM’s unsecured creditors, is attacking a “lockup agreement” which sent hundreds of millions of dollars to a group of hedge funds to get them to drop their claims against GM’s Nova Scotia unit. The deal helped keep the unit’s parent, GM Canada, out of bankruptcy, but the unsecured creditors trust says it was unfair, and, more importantly, not disclosed properly to Judge Gerber.

One condition of GM’s bailout was to shore up its overseas subsidiaries. On the eve of entering bankruptcy, the company cut a $367 million “lock-up agreement” with several major hedge funds to prevent GM Canada from failing. The agreement ensured that GM could spin-off its liabilities to “old GM,” while using a multi-billion dollar bailout to create a new company.

All of that could be reversed if bankruptcy Judge Robert Gerber reopens the process and rules in favor of old GM trustees, who are suing the hedge funds at the center of the lockout agreement.

“In this particular situation, there’s $1.3 billion in liabilities, but that’s just what’s officially back on the table if the court rules for old GM,” said a bankruptcy expert close to the negotiations. “If those go back on the table then everything could be back on the table and [new GM] would have to address them.”

Those liabilities, which include old GM’s debt and product liabilities that pre-date bankruptcy, are valued at $30 billion, a sum that would wipe out the company’s $34.6 billion cash reserves.

As I mentioned above Judges hate surprises– Gerber has expressed frustration with the “new” GM for failing to disclose the deal leaving the possibility that he may void the entire deal.

“When I approved the sale agreement and entered the sale approval order I mistakenly thought that I was merely saving GM, the supply chain, and about a million jobs. It never once occurred to me, and nobody bothered to disclose, that amongst all of the assigned contracts was this lock-up agreement, if indeed it was assigned at all,” Gerber said in July.

“The judge has made it very clear that he is greatly dissatisfied with the process,” one analyst told the Washington Free Beacon in October. “He’s basically implying that GM hid it from him and that reopening the sale is a possibility.”

If Gerber takes that course the company could be forced to return the $30 billion taxpayer bailout that it received through the course of bankruptcy, on top of the new liabilities.

“It’s nice to see that GM is profitable again, but if all the liabilities come back to roost, short that stock,” the bankruptcy expert said.

A GM spokesman declined comment since the litigation is pending.

In the end, as angry as the Judge may be I seriously doubt he will over-turn the entire bailout, as much as that would be good for the country. On the other hand, the new GM will probably receive a good judicial spanking.

Perhaps Obama should have changed his campaign slogan from Bin Laden is Dead and GM is Alive to Bin Laden Died and GM Lied.