Chrysler Chapter 11 reorganization
Encyclopedia
Chrysler LLC and twenty-four of its affiliated subsidiaries filed a consolidated petition for bankruptcy
on April 30, 2009, with the federal bankruptcy court in New York. The court filing occurred upon failure of the company to come to agreement with its creditors for an outside-of-bankruptcy restructuring plan, by the April 30 deadline mandated by the federal government.
At the time, Chrysler was controlled by the private investment company Cerberus Capital Management
which, along with other investors, purchased a majority stake in 2007.
On June 8, 2009, Supreme Court Associate Justice Ruth Bader Ginsburg, who handles emergency motions arising from the United States Appeals Court for the Second Circuit, in a one-sentence order, temporarily stayed the orders of the bankruptcy judge allowing the sale, pending further order by Justice Ginsburg or the Supreme Court.
On June 9, 2009, the Supreme Court published its denial of the applications for a stay of the sale from the three Indiana funds, allowing the sale of assets to "New Chrysler" to proceed.
According to the two-page decision and order, the Indiana funds "have not carried the burden" of demonstrating that the Supreme Court needed to intervene. The U.S. Department of the Treasury issued a statement saying: "We are gratified that not a single court that reviewed this matter, including the U.S. Supreme, found any fault whatsoever with the handling of this matter by either Chrysler or the U.S. government." The proposed sale of assets is scheduled to close on June 10, 2009, when the money to finance the deal is wired by the government. Fiat will receive equity in the New Chrysler through its contribution of automobile platforms as a base for a new line of Chrysler cars.
On June 10, 2009, the sale of most of Chrysler assets to "New Chrysler", formally known as Chrysler Group LLC was completed. The federal government financed the deal with US$ 6.6 billion in financing, paid to the "Old Chrysler", formerly known as Chrysler LLC and currently named Old Carco LLC.
The transfer does not include eight manufacturing locations, nor many parcels of real estate, nor equipment leases. Contracts with 789 U.S. auto dealerships, who are being dropped, were not transferred.
and Chrysler
LLC announced that they had a non-binding term sheet to form a global alliance. Under the terms of the potential agreement, Fiat could take a 35% stake in Chrysler and gain access to its North American dealer network in exchange for providing Chrysler with the platform to build smaller, more fuel-efficient vehicles in the U.S. and a reciprocal access to Fiat's global distribution network.
However, Fiat had warned that there would be no agreement if Chrysler failed to reach an agreement with the UAW and the Canadian Auto Workers' Union. On April 26, 2009, it appeared as if Chrysler had reached a deal with the unions which would meet federal requirements, though details were not made available. Chrysler said the union agreement "provides the framework needed to ensure manufacturing competitiveness and helps to meet the guidelines set forth by the U.S. Treasury Department."
protection at the Federal Bankruptcy Court of the Southern District of New York, on April 30, 2009, and announced an alliance with Fiat
.
Chrysler LLC Case No.: 09-50002
Related Debtors:
Chrysler Aviation Inc. Case No.: 09-50003
Chrysler Dutch Holding LLC Case No.: 09-50004
Chrysler Dutch Investment LLC Case No.: 09-50005
Chrysler Dutch Operating Group LLC Case No.: 09-50006
Chrysler Institute of Engineering Case No.: 09-50007
Chrysler International Corporation Case No.: 09-50008
Chrysler International Limited, LLC Case No.: 09-50009
Chrysler International Services, S.A. Case No.: 09-50010
Chrysler Motors LLC Case No.: 09-50011
Chrysler Realty Company LLC Case No.: 09-50000
Chrysler Service Contracts Inc. Case No.: 09-50013
Chrysler Service Contracts Florida, Inc. Case No.: 09-50012
Chrysler Technologies Middle East Ltd. Case No.: 09-50014
Chrysler Transport Inc. Case No.: 09-50015
Chrysler Vans LLC Case No.: 09-50016
DCC 929, Inc. Case No.: 09-50017
Dealer Capital, Inc. Case No.: 09-50018
Global Electric Motorcars, LLC Case No.: 09-50019
NEV Mobile Service, LLC Case No.: 09-50020
NEV Service, LLC Case No.: 09-50021
Peapod Mobility LLC Case No.: 09-50001
TPF Asset, LLC Case No.: 09-50022
TPF Note, LLC Case No.: 09-50023
Utility Assets LLC Case No.: 09-50024
Both the White House and Chrysler expressed hope for a "surgical" bankruptcy lasting 30 to 60 days, with the result of reducing the company's liabilities and post-bankruptcy emergence in stronger financial shape. The submitted court documents indicated that there would be a reorganization plan presented to the court in 120 days, on August 28, 2009. A White House official indicated that the government would provide debtor-in-possession financing
for between $US 3 billion to $US 3.5 billion, and upon a completion of Chrysler bankruptcy restructuring and court proceedings, the company would be eligible to receive up to $US 4.5 billion in financing to resume operations, for total of $US 8 billion of government support. Prior to the bankruptcy filing, Chrysler had received $US 4.5 billion in financing from the U.S. government, under a George W. Bush administration plan, in December 2008, after Congress declined to approve legislation to provide federal loans.
A new company will be formed to acquire the assets of Chrysler, which will be known as New CarCo Acquisition LLC.
On May 1, the two assembly plants in Canada
, Brampton Assembly
and Windsor Assembly
, both located in Ontario
, were shut down indefinitely. The shut downs affect about 2,700 and 4,400 employees, respectively. A Chrysler parts plant in Etobicoke, Toronto
will operate until May 10, when it will be shut down, affecting 300 employees.
Chrysler attorneys said eight of the company's factories, including five with a total of 4800 employees closing in 2010, would not be part of the Fiat deal. The company also announced the retirement of president and vice chairman Tom LaSorda.
Documents showed that the Sterling Heights, Michigan
plant, the Detroit Conner Avenue plant and the St. Louis North plant would close, along with the Twinsburg, Ohio
parts-stamping plant and the Kenosha, Wisconsin
engine plant.
The St. Louis South plant and a Newark, Delaware
plant were already closed and should not be sold to Fiat. Work from the Detroit axle plant, also not part of the Fiat deal, was moving to Port Huron, Michigan
. The eight plants would be leased by "new Chrysler" and then closed in 2010. As many employees as possible would be offered jobs at other Chrysler plants.
approved six motions at a May 1 hearing. At the next hearing on May 4, attorneys were expected to ask Gonzalez for permission to use the $4.5 billion the company had already received from the U.S. and Canadian governments to let the company continue operations. Also expected at the same hearing was a request for a date to sell assets to "new Chrysler." No other bids were expected, but documents showed attempts at deals with dozens of companies, including Nissan-Renault
, Toyota, Honda
, Volkswagen
and General Motors
. Banks possessing 70 percent of Chrysler debt agreed to be paid 29 cents on the dollar. But some hedge funds and other creditors that failed to agree with proposed pre-bankruptcy restructuring of debt have yet to approve of the debt restructuring proposed in initial court bankruptcy motions.
A health care trust fund owned by the United Auto Workers is proposed to own a 55% stake in the new Chrysler.
A group of dissident Indiana pension fund secured bondholders immediately appealed Gonzalez's decision, to the 2nd Circuit Court of Appeals in New York; the appeal is known as Indiana State Police Pension Trust v. Chrysler
. The plaintiffs claimed that the Department of the Treasury
treated Chrysler's secured creditor
s in a manner that is contrary to that called for under U.S. bankruptcy law
, that it is the first time in the history of more than 150 years of American bankruptcy law when secured creditors received less than unsecured creditors, and that it violated the Fifth Amendment
's clause that private property
cannot be taken without due process
of law. The funds include teachers and police officers funds, holding about $42.5 million in face value of Chrysler's $6.9 billion in secured debt; the secured debt has priority for repayment. Holders of 92 percent of that class of debt agreed to a proposed government that would exchange debt for a value of 29 cents on the dollar. The Indiana funds obtained their bonds in July 2008 at 43 cents per the dollar of face value.
The federal appeals court on June 5, 2009 affirmed the decision to approve the sale of its assets, and gave objecting bondholders until Monday June 8, 2009 to obtain a stay of the re-affirmed decision permitting the sale to be completed.
On June 8, 2009, Supreme Court Associate Justice Ruth Bader Ginsburg, who is assigned to emergency motions arising from the United States Appeals Court for the Second Circuit, in a one-sentence order, stayed the orders of the bankruptcy judge allowing the sale, pending further order by Justice Ginsburg or the Supreme Court. Fiat had the right to withdraw from the deal if it does not close by June 15; however, the head of Fiat said it "would never walk away" from the Chrysler deal, even if it did not close by June 15. According to U.S. government lawyers, Fiat walking away would leave Chrysler without a viable purchase plan and result in a likely liquidation.
On June 9, 2009, the Supreme Court published its denial of the applications for a stay of the sale from the three Indiana funds, allowing the sale of assets to "New Chrysler" to proceed.
According to the two page decision and order, the Indiana funds "have not carried the burden" of demonstrating that the Supreme Court needed to intervene. The U.S. Department of the Treasury issued a statement saying: "We are gratified that not a single court that reviewed this matter, including the U.S. Supreme, found any fault whatsoever with the handling of this matter by either Chrysler or the U.S. government." The proposed sale of assets is scheduled to close on Wednesday, June 10, 2009, when the money to finance the deal is wired by the government. Fiat will receive equity in the New Chrysler through its contribution of automobile platforms as a base for a new line of Chrysler cars.
On June 10, 2009, the sale of most of Chrysler assets to "New Chrysler", formally known as Chrysler Group LLC was completed. The federal government financed the deal with US$ 6.6 billion in financing, paid to the "Old Chrysler", formerly named Chrysler LLC and now currently named Old Carco LLC.
The transfer does not include eight manufacturing locations, nor many parcels of real estate, nor equipment leases. Contracts with 789 U.S. auto dealerships, which are being dropped, were not transferred.
, 20 percent; U.S. government, 9.85 percent; Canadian government, 2.46 percent; and the UAW retiree medical fund 67.69 percent, according to bankruptcy court documents.
Chapter 11, Title 11, United States Code
Chapter 11 is a chapter of the United States Bankruptcy Code, which permits reorganization under the bankruptcy laws of the United States. Chapter 11 bankruptcy is available to every business, whether organized as a corporation or sole proprietorship, and to individuals, although it is most...
on April 30, 2009, with the federal bankruptcy court in New York. The court filing occurred upon failure of the company to come to agreement with its creditors for an outside-of-bankruptcy restructuring plan, by the April 30 deadline mandated by the federal government.
At the time, Chrysler was controlled by the private investment company Cerberus Capital Management
Cerberus Capital Management
Cerberus Capital Management, L.P. is one of the largest private equity investment firms in the United States. The firm is based in New York City, and run by -year-old financier Steve Feinberg. Former U.S...
which, along with other investors, purchased a majority stake in 2007.
Initial court proceedings
On Sunday, May 31, 2009, bankruptcy judge Arthur J. Gonzalez approved a proposed government restructuring plan and sale of Chrysler's assets. The sale allows most of the assets of Chrysler to be purchased by a new entity in which Fiat would own 20%, and the autoworker's union retirement health care trust (voluntary benefit association "VEBA") 55%, with the U.S. and Canadian government as minority stakeholders. Secured bondholders would receive 29 cents on the dollar for their claims. The sale was appealed to the New York circuit court, which affirmed the sale on June 5, 2009. The dissident Indiana pension plan bondholders appealed again to the U.S. Supreme Court to block the sale. The U.S. 2nd circuit appeals court stayed its decision, pending a response from the Supreme Court, until 4PM, June 8, 2009.On June 8, 2009, Supreme Court Associate Justice Ruth Bader Ginsburg, who handles emergency motions arising from the United States Appeals Court for the Second Circuit, in a one-sentence order, temporarily stayed the orders of the bankruptcy judge allowing the sale, pending further order by Justice Ginsburg or the Supreme Court.
On June 9, 2009, the Supreme Court published its denial of the applications for a stay of the sale from the three Indiana funds, allowing the sale of assets to "New Chrysler" to proceed.
According to the two-page decision and order, the Indiana funds "have not carried the burden" of demonstrating that the Supreme Court needed to intervene. The U.S. Department of the Treasury issued a statement saying: "We are gratified that not a single court that reviewed this matter, including the U.S. Supreme, found any fault whatsoever with the handling of this matter by either Chrysler or the U.S. government." The proposed sale of assets is scheduled to close on June 10, 2009, when the money to finance the deal is wired by the government. Fiat will receive equity in the New Chrysler through its contribution of automobile platforms as a base for a new line of Chrysler cars.
On June 10, 2009, the sale of most of Chrysler assets to "New Chrysler", formally known as Chrysler Group LLC was completed. The federal government financed the deal with US$ 6.6 billion in financing, paid to the "Old Chrysler", formerly known as Chrysler LLC and currently named Old Carco LLC.
The transfer does not include eight manufacturing locations, nor many parcels of real estate, nor equipment leases. Contracts with 789 U.S. auto dealerships, who are being dropped, were not transferred.
Pre-bankruptcy negotiations with Fiat
On 20 January 2009, the Italian Fiat S.p.A.Fiat
FIAT, an acronym for Fabbrica Italiana Automobili Torino , is an Italian automobile manufacturer, engine manufacturer, financial, and industrial group based in Turin in the Italian region of Piedmont. Fiat was founded in 1899 by a group of investors including Giovanni Agnelli...
and Chrysler
Chrysler
Chrysler Group LLC is a multinational automaker headquartered in Auburn Hills, Michigan, USA. Chrysler was first organized as the Chrysler Corporation in 1925....
LLC announced that they had a non-binding term sheet to form a global alliance. Under the terms of the potential agreement, Fiat could take a 35% stake in Chrysler and gain access to its North American dealer network in exchange for providing Chrysler with the platform to build smaller, more fuel-efficient vehicles in the U.S. and a reciprocal access to Fiat's global distribution network.
Agreement with labor unions
By mid-April, as talks intensified between the two automakers to reach an agreement by a government-imposed deadline of April 30, Fiat's proposed initial stake was reported to be 20% with some influence on the structure of top management of the company.However, Fiat had warned that there would be no agreement if Chrysler failed to reach an agreement with the UAW and the Canadian Auto Workers' Union. On April 26, 2009, it appeared as if Chrysler had reached a deal with the unions which would meet federal requirements, though details were not made available. Chrysler said the union agreement "provides the framework needed to ensure manufacturing competitiveness and helps to meet the guidelines set forth by the U.S. Treasury Department."
Bankruptcy filing
Chrysler filed for chapter 11 bankruptcyChapter 11, Title 11, United States Code
Chapter 11 is a chapter of the United States Bankruptcy Code, which permits reorganization under the bankruptcy laws of the United States. Chapter 11 bankruptcy is available to every business, whether organized as a corporation or sole proprietorship, and to individuals, although it is most...
protection at the Federal Bankruptcy Court of the Southern District of New York, on April 30, 2009, and announced an alliance with Fiat
Fiat
FIAT, an acronym for Fabbrica Italiana Automobili Torino , is an Italian automobile manufacturer, engine manufacturer, financial, and industrial group based in Turin in the Italian region of Piedmont. Fiat was founded in 1899 by a group of investors including Giovanni Agnelli...
.
Chrysler LLC Case No.: 09-50002
Related Debtors:
Chrysler Aviation Inc. Case No.: 09-50003
Chrysler Dutch Holding LLC Case No.: 09-50004
Chrysler Dutch Investment LLC Case No.: 09-50005
Chrysler Dutch Operating Group LLC Case No.: 09-50006
Chrysler Institute of Engineering Case No.: 09-50007
Chrysler International Corporation Case No.: 09-50008
Chrysler International Limited, LLC Case No.: 09-50009
Chrysler International Services, S.A. Case No.: 09-50010
Chrysler Motors LLC Case No.: 09-50011
Chrysler Realty Company LLC Case No.: 09-50000
Chrysler Service Contracts Inc. Case No.: 09-50013
Chrysler Service Contracts Florida, Inc. Case No.: 09-50012
Chrysler Technologies Middle East Ltd. Case No.: 09-50014
Chrysler Transport Inc. Case No.: 09-50015
Chrysler Vans LLC Case No.: 09-50016
DCC 929, Inc. Case No.: 09-50017
Dealer Capital, Inc. Case No.: 09-50018
Global Electric Motorcars, LLC Case No.: 09-50019
NEV Mobile Service, LLC Case No.: 09-50020
NEV Service, LLC Case No.: 09-50021
Peapod Mobility LLC Case No.: 09-50001
TPF Asset, LLC Case No.: 09-50022
TPF Note, LLC Case No.: 09-50023
Utility Assets LLC Case No.: 09-50024
Both the White House and Chrysler expressed hope for a "surgical" bankruptcy lasting 30 to 60 days, with the result of reducing the company's liabilities and post-bankruptcy emergence in stronger financial shape. The submitted court documents indicated that there would be a reorganization plan presented to the court in 120 days, on August 28, 2009. A White House official indicated that the government would provide debtor-in-possession financing
Debtor-in-possession financing
Debtor-in-possession financing or DIP financing is a special form of financing provided for companies in financial distress or under Chapter 11 bankruptcy process. Usually, this security is more senior than debt, equity, and any other securities issued by a company...
for between $US 3 billion to $US 3.5 billion, and upon a completion of Chrysler bankruptcy restructuring and court proceedings, the company would be eligible to receive up to $US 4.5 billion in financing to resume operations, for total of $US 8 billion of government support. Prior to the bankruptcy filing, Chrysler had received $US 4.5 billion in financing from the U.S. government, under a George W. Bush administration plan, in December 2008, after Congress declined to approve legislation to provide federal loans.
A new company will be formed to acquire the assets of Chrysler, which will be known as New CarCo Acquisition LLC.
Plant operations suspended
Chrysler announced on the day of the bankruptcy filing that during the restructuring it would cease most manufacturing operations on May 4, 2009, and resume production "when the transaction is completed, which is anticipated within 30 to 60 days."On May 1, the two assembly plants in Canada
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
, Brampton Assembly
Brampton Assembly
Brampton Assembly is a Chrysler automobile factory is located at 2000 Williams Parkway East, in Brampton, Ontario, Canada. Originally built by American Motors Corporation for US$260 million, the manufacturing plant was specially designed for building the Eagle Premier.-History:In June 1984,...
and Windsor Assembly
Windsor Assembly
Windsor Assembly is a Chrysler automobile factory in Windsor, Ontario, Canada. The factory opened in 1928 and started minivan production in 1983. Windsor Assembly is also Windsor's largest employer with about 4,450 employees.-Overview:...
, both located in Ontario
Ontario
Ontario is a province of Canada, located in east-central Canada. It is Canada's most populous province and second largest in total area. It is home to the nation's most populous city, Toronto, and the nation's capital, Ottawa....
, were shut down indefinitely. The shut downs affect about 2,700 and 4,400 employees, respectively. A Chrysler parts plant in Etobicoke, Toronto
Toronto
Toronto is the provincial capital of Ontario and the largest city in Canada. It is located in Southern Ontario on the northwestern shore of Lake Ontario. A relatively modern city, Toronto's history dates back to the late-18th century, when its land was first purchased by the British monarchy from...
will operate until May 10, when it will be shut down, affecting 300 employees.
Chrysler attorneys said eight of the company's factories, including five with a total of 4800 employees closing in 2010, would not be part of the Fiat deal. The company also announced the retirement of president and vice chairman Tom LaSorda.
Documents showed that the Sterling Heights, Michigan
Sterling Heights, Michigan
Sterling Heights is a city in Macomb County of the U.S. state of Michigan, and one of Detroit's core suburbs. As of the 2010 census, the city had a total population of 129,699...
plant, the Detroit Conner Avenue plant and the St. Louis North plant would close, along with the Twinsburg, Ohio
Twinsburg, Ohio
As of the census of 2000, there were 17,006 people, 6,641 households, and 4,695 families residing in the city. The population density was 1,366.7 people per square mile . There were 6,871 housing units at an average density of 552.2 per square mile...
parts-stamping plant and the Kenosha, Wisconsin
Kenosha, Wisconsin
Kenosha is a city and the county seat of Kenosha County in the State of Wisconsin in United States. With a population of 99,218 as of May 2011, Kenosha is the fourth-largest city in Wisconsin. Kenosha is also the fourth-largest city on the western shore of Lake Michigan, following Chicago,...
engine plant.
The St. Louis South plant and a Newark, Delaware
Newark, Delaware
Newark is an American city in New Castle County, Delaware, west-southwest of Wilmington. According to the 2010 Census, the population of the city is 31,454. Newark is the home of the University of Delaware.- History :...
plant were already closed and should not be sold to Fiat. Work from the Detroit axle plant, also not part of the Fiat deal, was moving to Port Huron, Michigan
Port Huron, Michigan
Port Huron is a city in the U.S. state of Michigan and the county seat of St. Clair County. The population was 30,184 at the 2010 census. The city is adjacent to Port Huron Township but is administratively autonomous. It is joined by the Blue Water Bridge over the St. Clair River to Sarnia,...
. The eight plants would be leased by "new Chrysler" and then closed in 2010. As many employees as possible would be offered jobs at other Chrysler plants.
Initially approved motions
Federal bankruptcy judge Arthur J. GonzalezArthur Gonzalez
Arthur J. Gonzalez is a United States Bankruptcy Court Judge for the Southern District of New York. Gonzalez received his undergraduate degree from Fordham University in 1969. Following graduation, he worked as a New York City public school teacher until 1982, earning a masters degree from the...
approved six motions at a May 1 hearing. At the next hearing on May 4, attorneys were expected to ask Gonzalez for permission to use the $4.5 billion the company had already received from the U.S. and Canadian governments to let the company continue operations. Also expected at the same hearing was a request for a date to sell assets to "new Chrysler." No other bids were expected, but documents showed attempts at deals with dozens of companies, including Nissan-Renault
Renault
Renault S.A. is a French automaker producing cars, vans, and in the past, autorail vehicles, trucks, tractors, vans and also buses/coaches. Its alliance with Nissan makes it the world's third largest automaker...
, Toyota, Honda
Honda
is a Japanese public multinational corporation primarily known as a manufacturer of automobiles and motorcycles.Honda has been the world's largest motorcycle manufacturer since 1959, as well as the world's largest manufacturer of internal combustion engines measured by volume, producing more than...
, Volkswagen
Volkswagen
Volkswagen is a German automobile manufacturer and is the original and biggest-selling marque of the Volkswagen Group, which now also owns the Audi, Bentley, Bugatti, Lamborghini, SEAT, and Škoda marques and the truck manufacturer Scania.Volkswagen means "people's car" in German, where it is...
and General Motors
General Motors
General Motors Company , commonly known as GM, formerly incorporated as General Motors Corporation, is an American multinational automotive corporation headquartered in Detroit, Michigan and the world's second-largest automaker in 2010...
. Banks possessing 70 percent of Chrysler debt agreed to be paid 29 cents on the dollar. But some hedge funds and other creditors that failed to agree with proposed pre-bankruptcy restructuring of debt have yet to approve of the debt restructuring proposed in initial court bankruptcy motions.
A health care trust fund owned by the United Auto Workers is proposed to own a 55% stake in the new Chrysler.
Procedure to sell assets approved
In a setback to the arguments of hold-out creditors, primarily made up of investment firms, Judge Gonzalez on May 5, 2009 approved proposed bidding procedures that would likely lead to Chrysler's sale of assets to an entity in which Fiat is a major owner. The lawyer for the dissident creditors holding $US 300 million of a total $US 6.9 billion of secured debt in Chrysler argued that proposed sale procedures preclude other potential bidders. The plan is for several major Chrysler assets to be sold to a new entity jointly owned by the United Automobile Workers Union heath care trust fund, Fiat, and the United States and Canadian governments.Dealership closures
On May 14, 2009 Chrysler filed with the bankruptcy court to terminate the dealership agreements of 789, or about 25% of its dealerships.Sale to "New Chrysler"
On Sunday, May 31, 2009, bankruptcy Judge Arthur J. Gonzalez approved a proposed plan, rejecting more than 300 filed objections to the sale. The sale allows of most of the assets of Chrysler to be purchased by new entity in which Fiat would own 20%, the autoworker's union retirement health care trust (voluntary benefit association "VEBA") 55%; the U.S. Government and Canadian government would be minority stakeholders. Secured bondholders would receive 29 cents on the dollar for their claims.A group of dissident Indiana pension fund secured bondholders immediately appealed Gonzalez's decision, to the 2nd Circuit Court of Appeals in New York; the appeal is known as Indiana State Police Pension Trust v. Chrysler
Indiana State Police Pension Trust v. Chrysler
Indiana State Police Pension Trust v. Chrysler LLC was a lawsuit brought in United States federal court June 2009 by several pension funds against Chrysler LLC and the United States Department of the Treasury, to block the planned sale of Chrysler LLC assets to a "New Chrysler" entity in the...
. The plaintiffs claimed that the Department of the Treasury
United States Department of the Treasury
The Department of the Treasury is an executive department and the treasury of the United States federal government. It was established by an Act of Congress in 1789 to manage government revenue...
treated Chrysler's secured creditor
Secured creditor
A secured creditor is a creditor with the benefit of a security interest over some or all of the assets of the debtor.In the event of the bankruptcy of the debtor, the secured creditor can enforce security against the assets of the debtor and avoid competing for a distribution on liquidation with...
s in a manner that is contrary to that called for under U.S. bankruptcy law
Bankruptcy in the United States
Bankruptcy in the United States is governed under the United States Constitution which authorizes Congress to enact "uniform Laws on the subject of Bankruptcies throughout the United States." Congress has exercised this authority several times since 1801, most recently by adopting the Bankruptcy...
, that it is the first time in the history of more than 150 years of American bankruptcy law when secured creditors received less than unsecured creditors, and that it violated the Fifth Amendment
Fifth Amendment to the United States Constitution
The Fifth Amendment to the United States Constitution, which is part of the Bill of Rights, protects against abuse of government authority in a legal procedure. Its guarantees stem from English common law which traces back to the Magna Carta in 1215...
's clause that private property
Private property
Private property is the right of persons and firms to obtain, own, control, employ, dispose of, and bequeath land, capital, and other forms of property. Private property is distinguishable from public property, which refers to assets owned by a state, community or government rather than by...
cannot be taken without due process
Due process
Due process is the legal code that the state must venerate all of the legal rights that are owed to a person under the principle. Due process balances the power of the state law of the land and thus protects individual persons from it...
of law. The funds include teachers and police officers funds, holding about $42.5 million in face value of Chrysler's $6.9 billion in secured debt; the secured debt has priority for repayment. Holders of 92 percent of that class of debt agreed to a proposed government that would exchange debt for a value of 29 cents on the dollar. The Indiana funds obtained their bonds in July 2008 at 43 cents per the dollar of face value.
The federal appeals court on June 5, 2009 affirmed the decision to approve the sale of its assets, and gave objecting bondholders until Monday June 8, 2009 to obtain a stay of the re-affirmed decision permitting the sale to be completed.
On June 8, 2009, Supreme Court Associate Justice Ruth Bader Ginsburg, who is assigned to emergency motions arising from the United States Appeals Court for the Second Circuit, in a one-sentence order, stayed the orders of the bankruptcy judge allowing the sale, pending further order by Justice Ginsburg or the Supreme Court. Fiat had the right to withdraw from the deal if it does not close by June 15; however, the head of Fiat said it "would never walk away" from the Chrysler deal, even if it did not close by June 15. According to U.S. government lawyers, Fiat walking away would leave Chrysler without a viable purchase plan and result in a likely liquidation.
On June 9, 2009, the Supreme Court published its denial of the applications for a stay of the sale from the three Indiana funds, allowing the sale of assets to "New Chrysler" to proceed.
According to the two page decision and order, the Indiana funds "have not carried the burden" of demonstrating that the Supreme Court needed to intervene. The U.S. Department of the Treasury issued a statement saying: "We are gratified that not a single court that reviewed this matter, including the U.S. Supreme, found any fault whatsoever with the handling of this matter by either Chrysler or the U.S. government." The proposed sale of assets is scheduled to close on Wednesday, June 10, 2009, when the money to finance the deal is wired by the government. Fiat will receive equity in the New Chrysler through its contribution of automobile platforms as a base for a new line of Chrysler cars.
On June 10, 2009, the sale of most of Chrysler assets to "New Chrysler", formally known as Chrysler Group LLC was completed. The federal government financed the deal with US$ 6.6 billion in financing, paid to the "Old Chrysler", formerly named Chrysler LLC and now currently named Old Carco LLC.
The transfer does not include eight manufacturing locations, nor many parcels of real estate, nor equipment leases. Contracts with 789 U.S. auto dealerships, which are being dropped, were not transferred.
Initial equity structure
Initially, the percentages of equity ownership in Chrysler Group LLC are: FiatFiat
FIAT, an acronym for Fabbrica Italiana Automobili Torino , is an Italian automobile manufacturer, engine manufacturer, financial, and industrial group based in Turin in the Italian region of Piedmont. Fiat was founded in 1899 by a group of investors including Giovanni Agnelli...
, 20 percent; U.S. government, 9.85 percent; Canadian government, 2.46 percent; and the UAW retiree medical fund 67.69 percent, according to bankruptcy court documents.
See also
- General Motors Chapter 11 reorganizationGeneral Motors Chapter 11 reorganizationThe General Motors Chapter 11 sale of the assets of automobile manufacturer General Motors and some of its subsidiaries was implemented through section 363 of Chapter 11, Title 11, United States Code in the United States Bankruptcy Court for the Southern District of New York...
- Automotive industry crisis of 2008-2009