Just when it started to look like Chrysler was about to pull out of bankruptcy, another roadblock has popped up. A U.S. Court of Appeals agreed on Tuesday to hear a challenge to the sale of most of Chrysler's assets to a group led by Fiat.
The challenge comes from a group of Indiana pension funds that hold a small amount of Chrysler's secured debt. The group's appeal will put the Chrysler sale on hold to allow a three-judge panel for the U.S. Court of Appeals for the Second Circuit to hear the expedited appeal.
The panel will consist of Chief Judge Dennis Jacobs, Judge Amalya Kearse, and Judge Robert Sack. They will hear the hear arguments in the appeal on Friday at 2 p.m. in New York, according to a court order on Tuesday.
Earlier this week, U.S. Bankruptcy Judge Arthur Gonzalez had ruled that the sale could be become effective on Friday. The resulting "New Chrysler" will be owned by Fiat, the company's union, and the U.S. and Canadian governments. However, those plans could change based on the outcome of the appeal.
The Indiana pension funds say that the sale violates traditional bankruptcy laws about the order in which parties are repaid. They say the terms of the sale favor more junior creditors over senior secured creditors.
The pension funds are calling the Chrysler's plan to distribute stock in the "New Chrysler" an illegal "sub rosa" reorganization plan, which ordinarily would not be allowed under the bankruptcy code.
According to the court documents, several other objectors to the Chrysler sale have joined the Indiana pension funds in the appeal. Chrysler's lawyers are arguing that if the company does not complete the sale by June 15, Fiat is allowed to walk away from the deal and Chrysler could face liquidation.
Source: Automotive News