Chrysler Clears Legal Hurdles to Sale of Assets
By: Donna Ray Chmura. This was posted Wednesday, June 10th, 2009
The full Supreme Court Tuesday decided not to hear the merits of a challenge to the sale of Chrysler assets to a group comprised of Fiat, the US, Canada and the Chrysler Auto Worker Union Retirement Trust. The unanimous court, in a two-page-opinion, lifted the temporary stay granted by Justice Ruth Bader Ginsberg on Monday, and stated that the challengers had not met their burden of proof that their grievances merited the court’s attention.
A group of Indiana pension funds and consumer groups who opposed the sale of Chrysler had filed an emergency motion with the U.S. Supreme Court, asking that the sale be “stayed” or put on hold while they continue their attempts to block it. The pension funds owned a small portion of Chrysler’s secured debt and claimed the sale was unfair to secured lenders. Under the sale, the pension funds will receive just 29 cents on the dollar, less than unsecured creditors like the United Auto Workers Union. The consumer groups contend that the sale doesn’t sufficiently address warranties of existing Chrysler, Dodge and Jeep products.
After the ruling, Chrysler issued a statement saying the sale will close “very shortly.” The New York Times reports the deal is scheduled to close at 9 a.m. today. Fiat shares were up as much as 3 percent early Wednesday morning.
Also Tuesday, the Bankruptcy Court approved Chrysler’s motion to terminate 789 dealer franchises immediately, which Chrysler contends would significantly cut costs. Scores of dealers had opposed the closings.
The Wall Street Journal calls the Supreme Court decision a victory for the Obama administration:
The high court’s move marks a victory for the Obama administration and its ambitious plan to remake the American auto industry by pushing both Chrysler and General Motors Corp. through quick and painful restructurings under Chapter 11 bankruptcy.
But the order is a setback for a group of Indiana pension funds and others who maintained the government’s heavy-handed treatment of creditors in the case could chill private lending to distressed firms and alter the rules of bankruptcy reorganizations.
The Court’s decision appears not to provide advance clearance for any other government rescue plan — such as the similar administration-backed bankruptcy of General Motors. It also does not rule on the constitutionality of using federal bailout funds to rescue a private company.
Tags: Affected Dealers, bailout, Chapter 11, Chrysler, Chrysler Bankruptcy, Dodge, Fiat, General Motors, General Motors Bankruptcy, Ginsberg, Indiana Pension Funds, Jeep, Supreme Court, temporary stay, United Auto Worker Union Retirement Trust, United Auto Workers Union