The US bankruptcy judge overseeing Chrysler LLC’s bankruptcy case said on Friday he would issue an opinion ”sometime on Monday” on the carmaker’s proposed sale of most assets to a new company run by Italy’s Fiat SpA.
The sale seeks to create a ”New Chrysler” owned by Fiat, labour unions and the US and Canadian governments, in exchange for $2-billion paid to its lenders.
Unwanted plants and businesses would remain in bankruptcy court, although the company’s chief financial officer said some unsecured claims may get nothing.
If approved, the plan would vindicate the White House, which had been criticised by many bankruptcy specialists for setting a seemingly unrealistic goal of bringing the carmaker’s operations through Chapter 11 in as little as 30 days.
In three days of hearings, which included testimony from chief executive Robert Nardelli and chief financial officer Ron Kolka, objectors to the deal argued that Chrysler was moving too quickly, that its sale violated bankruptcy principals, and that it was needlessly closing hundreds of its dealerships.
Lawyers in support of the deal, however, argued that the quick sale was Chrysler’s only choice to avoid liquidation, preserve the value of Chrysler’s operations, save more than 100 000 jobs and prevent further shock waves to the US economy.
”It’s not perfect, innocent people are being harmed here, but the fact is this company will live,” Thomas Moers Mayer, an attorney at Kramer Levin who represents Chrysler’s unsecured creditors’ committee, said as he urged the Judge Arthur Gonzalez to sign off on the deal.
Nardelli said in his testimony on Thursday that he expected the deal to close on Friday, but Gonzalez has put that closing off by delaying his ruling.
In his written decision on the sale next week, Judge Gonzalez is likely to address a number of the objectors key concerns. Throughout the hearing Judge Gonzalez asked attorneys on both sides pointed questions about issues like dealership obligations and the US Treasury’s involvement in the deal.
”What’s unique about this transaction is that the government is the lender,” said Gonzalez on Friday. ”It’s a political issue whether people believe the government should be involved to this extent. I don’t think it’s a legal issue.”
Gonzalez also focused on Chrysler’s arguments that the transaction was the best way to preserve the value of the company to pay claims for all parties.
Chrysler’s bankruptcy proceedings show the possibility of an orderly restructuring of a major US carmaker and could be a model for General Motors, the White House said on Friday.
The three main groups of objectors to the deal were rejected dealerships, product liability claimants and a group of Indiana pension funds that hold a small portion of Chrysler’s secured debt.
The pension funds argued their secured loans to Chrysler were being subverted to more junior creditors such as union retiree claims in violation of the bankruptcy code.
”The result proposed here is not the thing any lender would have expected when they made that loan,” said Tom Lauria, an attorney with White & Case in New York who is representing the funds.
”The courts should not permit that inversion of priority to occur.”
The dealers also mounted a challenge to the sale, calling several rejected dealership owners to the stand and raising questions about Chrysler’s business judgement.
”There is no condition to the sale that says that any dealers’ agreements need to be rejected,” Stephen Lerner, an attorney for a group of rejected dealers told the court in his closing arguments.
Chrysler has proposed closing 789 dealers, about a quarter of its network of franchises.
Lawyers for consumer groups, tort claimants and injured customers and workers also argued against the deal, saying that plans by ”New Chrysler” to leave their liabilities with the old company were improper and that no one would stand behind the cars Chrysler has made and sold prior to its bankruptcy.
Opponents to the sale expect the transaction to be approved, in part because of the argument that there is little alternative and the Chrysler operations, which have been shut during bankruptcy, were rapidly losing value.
But even once the Judge issues his decision, they plan to continue fighting.
”We will prepare our documents and appeal,” said Lauria outside the courtroom.
Lauria said he expected the judge to give a few days before the sale takes effect to allow for appeals. Chrysler has asked that the sale be allowed to take effect immediately. – Reuters