(Bloomberg) -- A federal appeals court upended GeneralMotors Co.’s plan to shed hundreds of customer lawsuits overignition switch defects, ruling that such litigation was not automatically barred by the company’s2009 bankruptcy sale to a new corporate entity.

The deal that turned “Old GM” into “New GM” to save the storiedcompany from financial ruin doesn’t prevent pre-sale lawsuits overthe deadly switch or claims by people who bought used GM cars, theappeals court in Manhattan said Wednesday. Those customers didn’thave a chance to challenge the transaction before it was approvedby the U.S. Bankruptcy Court in New York seven years ago, the courtsaid.

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“New GM essentially asks that we reward debtors who concealclaims against potential creditors. We decline to do so,” theappeals court said in its ruling. “Due process applies even in acompanys moment of crisis.”

The decision is a setback for GM after the company won twostraight victories in test trials over the ignition switch defectin millions of vehicles. The Detroit-based company also settled twoother test cases before they reached a jury, including a case thatwould have included emotional testimony about the death of a fatherof five.

Egregious claims

“Even if some claims are ultimately allowed to proceed, theplaintiffs must still prove their cases,” Jim Cain, a spokesman forGM said in a statement.

The revived lawsuits include some of the most egregious claimsagainst the carmaker, said Robert Hilliard, a lawyer representinghundreds of GM customers including at least 300 whose cases areaffected by the ruling.

“Finally they’ll have a chance at justice,” Hilliard said in aphone interview.

In its ruling, the appeals court also assailed GM’s handling ofthe ignition switch defect from the moment it was first discovered,giving a detailed outline of the company’s failure to fix theproblem and attempts to keep it from the public.

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“At minimum, Old GM knew about moving stalls and airbagnondeployments in certain models, and should have revealed thosefacts in bankruptcy,” the court said.

While GM has said top executives didn’t know the switch was apersistent problem, the company admitted in a Justice Departmentsettlement that it knew about the defect by 2005 and concealed itfrom regulators between 2012 and 2014.

The case is In re Motors Liquidation Co., 15-2844, U.S.Court of Appeals for the Second Circuit (Manhattan).

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