Mon, June 08, 2009
Business > Industries > US auto industry's downfall

Chrysler's creditors make last-ditch effort to block Chrysler-Fiat deal

2009-06-08 03:27:39 GMT2009-06-08 11:27:39 (Beijing Time)  Xinhua English

Photo taken on April 14 shows the Chrysler headquarters in Michigan, U.S.. (Xinhua File Photo)

CHICAGO, June 7 (Xinhua) -- The U.S. automaker Chrysler LLC's creditors have decided to file a last-ditch appeal with the U.S. Supreme Court in their bid to block the company from selling its good assets out of bankruptcy court to a group headed by Italy's Fiat SpA.

Three Indiana state pension and construction funds filed emergency papers at the high court early Sunday.

A three-judge federal appeals court panel in New York Friday upheld U.S. Bankruptcy Judge Arthur Gonzalez's approval to sell the assets. The appellate court took just 17 minutes to reach a decision, but delayed implementation of its ruling until Monday.

The Indiana State Police Pension Fund, the Indiana Teacher's Retirement Fund and the state's Major Moves Construction Fund claim the deal unfairly favors the interests of the company's unsecured stakeholders ahead of those of secured debt holders such as themselves.

The government-sponsored reorganization of the U.S. auto industry, including the Chrysler bankruptcy proceedings, "is a matter of incredibly high profile and importance," the funds said in their request to the high court.

"The public is watching and needs to see that, particularly when the system is under stress, the rule of law will be honored and an independent judiciary will properly scrutinize the actions of the massively powerful executive branch," they said.

These fund organizations have also decided to challenge the constitutionality of U.S. Treasury Department's use of the 700-billion-U.S.-dollar Troubled Asset Relief Program to supply Chrysler's bankruptcy protection financing.

They say the Treasury did so without congressional authority. But the Justice Department said the automakers were "interconnected" to financial institutions, noting the large-scale auto lending.

According to reports, the emergency request of these fund organizations will first go to Justice Ruth Bader Ginsburg, who handles such matters from New York. She can act on her own or refer it to the entire court.

U.S. Judge Arthur Gonzalez, the bankruptcy judge overseeing Chrysler's case, approved the sale on June 1, finding that the deal with Fiat was Chrysler's only alternative to liquidation. The appeals court halted the sale on June 3, allowing opponents to appeal Gonzalez's decision.

Apart from a group of Indiana pension funds, dealers whose franchises are being eliminated by Chrysler continue to fight the closures.

Time is of the essence as the fate of terminated Chrysler dealers is to be decided by Gonzalez Tuesday.

The appeals court judges in New York expressed skepticism about the challengers' arguments, saying repeatedly that the alternative was liquidation of the company.

If Chrysler is liquidated, 155,000 workers would lose their jobs, and the U.S. economy would suffer a devastating impact, the company attorney said.

Media reports say Chrysler is seeking to leave its bad debts in bankruptcy, and leave with its good assets for the new tie-up with Fiat.

On April 30, Chrysler filed for Chapter 11 bankruptcy protection and announced a partnership with Italian automaker Fiat. On June 1, Chrysler announced they were selling some assets and operations to the newly formed company Chrysler Group LLC.

Under the deal, Fiat will hold a 20 percent stake in the new company, with an option to increase this to 35 percent, and eventually to 51 percent.

Chrysler faces a June 15 deadline, after which Fiat could walk away from the deal to take 20 percent of the company.

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