Federal Judiciary

Key points of Chrysler plan defense

By Akin Gump Supreme Court Practice Group

The key points of the Official Commitee of Unsecured Creditors (including the United Auto Workers union, workers, suppliers, dealers and other creditors) in defense of the Chrysler sale plan are:

* The plan “is not perfect,” and will cause “impairment” of many interests — especially those of Chrysler dealers, but ”a national disaster” would follow if the plan is blocked and Chrysler collapses, sending harmful ripples across the Nation to engulf dealers, suppliers, workers, customers, lenders, and the whole economy.

* The deal to sell nearly all of Chrysler’s assets to a new company (NewChrysler), in partnership with the Italian automaker Fiat, is the only alternative to closing Chrysler down, with nothing left to sell but “scrap.”

* Shutting down the company would bring in only about $800 million for what is left of it, considerably less than the $2 billion in government funds that will be distributed to lenders.  None of the $2 billion will go to creditors with no security.

* The deal could fall through if it is delayed beyond June 15.  There is no assurance that the U.S. government or Fiat would be willing or able to work out another deal to prevent Chrysler’s demise.

* The Indiana benefit funds that are leading the opposition is a “fringe group” that holds less than 1 percent of the top-priority debt, and there is no reason for the courts to force everyone else to gamble with what could come next.

* It is “nonsense” to suggest that the interests of the priority debt holders are being transferred to the union or to others with unsecured claims. Those entities will not get any part of the $2 billion payment to “old” Chrysler to close the deal with NewChrysler.  Their arrangements are with NewChrysler, reached by negotiations independent of priority lenders’ interests.  They will get stock in the new company, in return for their contributions to its future operations.

* Not one aspect of the deal is illegal under bankruptcy law.  It is not an end-run around a formal plan to reorganize Chrysler.  It is simply a pre-plan sale of assets to keep a “going concern” alive.  While its size is unprecedented, the nature of the deal is fairly common.

* There is little, if any, chance that the Supreme Court will hear the coming appeals challenging the plan, and less that it would overturn it, so there is no reason for delay.

Full post as published by SCOTUSBLOG on June 07, 2009 (boomark / email).