US Court puts hold on Chrysler bankruptcy exit
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US Court puts hold on Chrysler bankruptcy exit

The US Supreme Court has put a temporary freeze on Chrysler's plan to exit bankruptcy protection under an alliance with Italian automaker Fiat.

business Updated: Jun 09, 2009 09:48 IST

The US Supreme Court on Monday put a temporary freeze on Chrysler's plan to exit bankruptcy protection under an alliance with Italian automaker Fiat.

Justice Ruth Bader Ginsburg signed an order postponing the closure of the plan, which is backed by the US and Canadian governments and which would allow Chrysler to emerge from bankruptcy as a new entity.

A group of Indiana pension funds opposed to Chrysler's sale to Fiat filed the emergency appeal with the Supreme Court.

The Supreme Court's decision will allow the justices to consider whether to allow a full hearing on the legal issues -- a delay which Chrysler and US officials say could cause the plan to collapse.

The administration of President Barack Obama tried to play-down the significance of the decision.

"We understand this to be an administrative extension designed to allow sufficient time for the Court to make a determination on the merits of the request for a stay," an administration official said.

The order calls for a stay "pending further order by the undersigned or by the court."

Without the stay, the deal could have been closed as of 2000 GMT Monday under a ruling by the US Court of Appeals in New York, which upheld the decision of a bankruptcy judge.

"Absent a stay, the court will be deprived of the opportunity to decide critical, nationally significant legal issues relating to management of the economy by the United States government," the pension funds said in their application.

They argued that the sale is unconstitutional because it puts the rights of junior creditors ahead of the rights of senior lenders.

The three state pension and construction funds also said the US Treasury Department had overstepped the authority it was granted by Congress under the Troubled Asset Relief Program (TARP), a 700-billion-dollar bailout intended for the financial industry, by financing Chrysler's restructuring.

A US government brief argued that "the only other alternative is the immediate liquidation of the company," which would be detrimental to all Chrysler's creditors.

Judge Arthur Gonzalez, in an order approving the Chrysler reorganization May 31, agreed to allow the planned tie-up with Fiat to be completed rapidly.

The judge said he agreed to the accelerated plan in view of arguments from an adviser to the White House auto task force that the automaker is losing 100 million dollars for each day the plan is delayed.

The plan gives Fiat a 20 percent stake in the Detroit group with a possibility of increasing that share.

In return, Fiat will allow access to its technology to enable the US carmaker to make the smaller, greener cars that are increasingly in demand.

The new firm would be majority owned by the United Auto Workers (UAW) union, with small stakes by the US and Canadian governments, which would contribute some 10.5 billion dollars to the venture.

Chrysler's quick bankruptcy plan is also a key for General Motors, which filed June 1 for creditor protection in the hope of a 60- to 90-day exit under a plan that would give the US government a majority stake in the new GM.

Jeremy Anwyl, chief executive of the research firm, noted that "there's always a danger in declaring victory prematurely."

Anwyl added: "The real question is: what does this mean for GM? GM may not have followed Chrysler into bankruptcy if it hadn't appeared to be going so smoothly."

First Published: Jun 09, 2009 09:46 IST