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Court blocks quick Chrysler sale

Legal bind: Chrysler's marriage with Fiat has hit a speed bump in the shape of the US Supreme Court.

Chrysler litigation casts doubt on GM’s Chapter 11 plan

Chrysler logo9 Jun 2009

THE planned smooth and quick re-emergence of Chrysler from its Chapter 11 bankruptcy has been thrown into chaos after some superannuation funds challenged the terms of the Chrysler reorganisation.

A US Supreme Court judge froze the Chrysler reorganisation process, sparking concerns that the General Motors bankruptcy process may not be as quick and easy as the US government had hoped.

The decision by Justice Ruth Bader Ginsburg stayed the sale of Chrysler’s good assets to a Fiat-controlled company for an indefinite period, and frustrating the US government's desire for the court to clear the way for the Chrysler deal.

On Tuesday, the Obama administration warned that court delays could have “grave consequences”.

Superannuation funds and consumer groups from Indiana asked the Supreme Court to stop the asset sales because they believe the terms of Chrysler’s reconstruction unfairly favour unsecured creditors over secured creditors.

They claim the reorganisation plan is illegal and that the US treasury department erred when it used bailout funds originally intended for the banking industry.

 center imageLeft: Supreme Court Justice Ruth Bader Ginsburg.

The court was told by solicitor general Elena Kagan of the US justice department, who represented the administration in court, that blocking the sale could force Chrysler's liquidation.

Ms Kagan defended the use of the bailout funds and said granting a stay beyond June 15 would jeopardise the sale.

Under the deal brokered with Fiat, the Italian car-maker can walk away from the deal if it is not closed by June 15.

The court decision to stay the process was criticised by congressman Gary Peters, whose congressional electorate includes the Chrysler headquarters.

“It is quite clear that the Indiana case is not in the best interests of the people of Indiana,” he said.

“Other stakeholders, including secured lenders and Chrysler’s autoworkers, accepted shared sacrifice because they recognised their interest was better served keeping Chrysler alive rather than forcing liquidation.

“Why the officials who decided to take their objections all the way to the supreme court can’t recognise this is beyond me.

“Indiana officials are fighting over $4.8 million at the risk of costing their state over $20 million in tax revenue, tens of millions more in related costs and putting 4000 of their own people out of work.”

Read more:

Chrysler-Fiat alliance is go

Chrysler set to chop 25 per cent of dealers

Way cleared for Fiat/Chrysler deal

Chrysler, Fiat join forces


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