The US Supreme Court has lifted a stay on Chrysler’s sale to the Italian company Fiat, ending fears that the American car manufacturer would be forced to liquidate.
Chrysler is now free to sell its assets to the Italian car company and emerge from Chapter 11 protection, just over five weeks after it filed for bankruptcy with a New York court.
The treasurer of the state of Indiana had appealed against the sale, which he argued went against US bankrutpcy laws.
In a two-page decision released on Tuesday evening, the Supreme Court said that Richard Mourdock, Indiana’s treasurer, and his attorneys had not put forward sufficient arguement to justify further delaying the sale.
America’s highest court said that its decision did not constitute a finding on the underlying legal issues.
The decision brokered by President Barack Obama’s auto task force on the division of Chrysler’s assets is a fraught one because it contravenes US bankruptcy law. Times Online
As part of the reorganization plan, the new Chrysler will be owned 20% by Fiat, together with the U.S. and Canadian governments, while over 67% will be controlled by the United Auto Workers.
Fiat’s 20% stake could increase to 35% if the new company meets benchmarks intended to ensure the development of fuel-efficent vehicles in the U.S., and it has the option to become the majority stakeholder once U.S. loans have been repaid.
The nine-member board of Chrysler will include Fiat Chief Executive Sergio Marchionne, who will hold the same post, Fiat Powertrain chief executive Alfredo Altavilla, as well as the former vice-chairman of ExxonMobil Lucio Noto.
Fiat will supply the U.S. automaker with engine technology and auto platforms as part of a non-cash agreement struck by Marchionne. Wall Street Journal
While the automaker got major concessions from the United Auto Workers and large banks holding billions in secured debt, a group of Indiana pension funds holding about $42 million of the automaker’s debt objected to their treatment doled out in the bankruptcy process and challenged the legality of the process. Last Friday, the appellate court upheld the decision by the New York bankruptcy judge approving Chrysler’s reorganization plan with Fiat.
In denying a hearing of the case, the Supreme Court issued a brief, unsigned opinion explaining its action. To obtain a delay, or stay, of the deal, a plaintiff must convince at least four of the nine justices that the issue raised is serious enough to warrant hearing a full appeal and that a majority of the court will conclude the lower court decision was wrong. “The applicants have not carried that burden,” the court said.
Indiana Treasurer Richard Mourdock, who led the cause of the pension funds, expressed disappointment with the decision and said options seem limited for opponents of the sale. “Obviously the Supreme Court of the land is the supreme court of the land,” Mourdock said. “The United States government has, I continue to believe, acted egregiously by taking away the traditional rights held by secured creditors.”
The White House issued a statement applauding the decision: “The Chrysler-Fiat alliance can now go forward, allowing Chrysler to re-emerge as a competitive and viable automaker.
Jerome York, the former vice chairman of Chrysler who has advised financier Kirk Kerkorian in his investments in Chrysler, General Motors, and Ford, said he doesn’t know if Fiat will be successful. But he predicted it would do a “better job with Chrysler than Daimler did.” Daimler-Benz acquired Chrysler in 1998 and sold most of its interests to private equity firm Cerberus Capital Management in 2007. “Daimler did just a god-awful job” of managing the acquisition, said York. Business Week
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