Supreme Court stays Chrysler bankruptcy

CNN:

The Supreme Court threw a wrench into the plans to have a quick bankruptcy process at Chrysler LLC, delaying the company's combination with Italian automaker Fiat.

The bankruptcy judge overseeing the Chrysler case had given approval for the company's most valuable assets, such as plants, dealerships and contracts, to become part of a new company in which Fiat would hold a significant stake.

Supreme Court Justice Ruth Bader Ginsburg, in an order issued late Monday, granted a request for a delay of that approval sought by Indiana state pension funds, which had argued that they and other lenders deserved better treatment by the bankruptcy court.

No reason for the delay was given in the order, and there were no details about how quickly the issue could be resolved by the nation's highest court.

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Two issues were presented to the court as reasons for issuing a stay. The first is the Constitution's contract clause. Chrysler entered into a deal with the pension funds and others that gave them a superior lien to other creditors and the deal they are trying to get a approved puts these senior lenders behind the UAW pension plans even though they are unsecured creditors.

The second reason the appellants gave was the lack of authorization for using TARP funds for the purpose of propping up auto companies when the specific authorization was to prop up banks and financial institutions. The company and the government have raised issues of standing on this second issue.

I have not seen a persuasive argument that would allow the company to put unsecured creditors ahead of the secured creditors. There are sound reasons why they should not, including the negative impact on the financing of companies that is already happening.