Posted on May 30, 2009 by Teri Rasmussen

363 Bankruptcy Sale FAQ - What You Need to Know to Understand What's Going On with Chrysler and GM

I've been writing a lot lately about the Chrysler bankruptcy and will probably be writing a lot more about the GM bankruptcy to come (it's happening Monday - mid-day press conference in NYC).  As a creditor oriented bankruptcy attorney in a Michigan based firm with more than twenty plus years of experience, I just can't help myself - this really is the biggest thing to come down the pike in my professional life as far as actual relevance to the real world.  I've even written a fair amount about the 363 sale process itself -- and for those of you wanting more detail about how all this works, please visit -- but I thought it might be helpful to address the basic questions about 363 sales in general (and with respect to Chrysler and GM in particular) in one place with, hopefully, a minimum of legalease... 

 

1.                  What is a “363 sale”?

It is a sale of assets in a bankruptcy case, generally in a Chapter 11 reorganization, so named because of the section of the Bankruptcy Code dealing with the procedure. A discrete asset or assets, such as a particular piece of equipment or parcel of real estate, may be sold pursuant to 11 USC §363, or, especially recently, several bankruptcy courts will authorize a sale including all, or substantially all, of the bankrupt company’s assets. The assets will be conveyed to the purchaser free and clear of any liens or encumbrances. Those liens or encumbrances will then be attached to the net proceeds of the sale and paid as ordered by the Bankruptcy Court.

 

2.                  What is the purpose of a 363 sale?

According to the legislative history, the purpose of section 363 of the Bankruptcy Code is to “define the rights and powers of the [bankruptcy] trustee [or Debtor] with respect to the use, sale, or lease of property and the rights of other parties that have interests in the property involved.” It permits the disposition of assets of the bankrupt company outside the ordinary course of business  

 

3.                  What is the process for a 363 sale?

The bankrupt company (known as the Debtor or Debtor-in-Possession) or bankruptcy trustee in chapter 7 cases must file a Motion with the Bankruptcy Court in which the case is pending seeking the Bankruptcy Court’s approval of the terms and conditions of the proposed sale. Opponents of the proposed sale will have a designated response period determined by the pertinent Bankruptcy Court (often 10 or 20 days) in which to file written objections to the proposed sale. Frequently, although not always, this time period will be shortened considerably and be little more than a few days.

 

The Bankruptcy Code then requires “notice and a hearing” on the Motion at which each side can present its argument. Although an “actual” hearing is not required, typically there will be one. Then the Bankruptcy Judge considers the arguments made and either approves the sale as outlined by the Motion or denies approval. If the sale is approved, then the Debtor will proceed with making it a reality.

           

4.                  What is the timeline for a typical 363 sale?

A 363 sale may take anywhere from a few days to several months to complete, depending upon whether there is opposition to the sale and how many parties are interested in purchasing the assets being offered. Generally speaking, the process can be completed in a few weeks.

 

5.                  What information does the motion seeking approval of a 363 sale have to contain?

The Motion or exhibits attached to it must provide detailed information about all of the essential terms and conditions of the contemplated sale, including the identity of the prospective purchaser, purchase price, assets to be sold, and the like. Frequently, the actual Purchase Agreement between the Debtor and prospective purchaser (sometimes referred to as a “stalking horse”) is attached to the Motion as an exhibit.

 

Generally, the Motion will also contained specific detailed provisions regarding the timing and manner applicable to the submission of any competing offers for the assets to be sold.

It is also possible that the Motion will simply seek approval of a auction or other sales procedure to determine who the successful purchaser will be.

 

6.                  What are the requirements for approval of a 363 sale?

 The Bankruptcy Court must determine:

  • Whether the terms of the sale constitute the highest and best offer for the assets to be sold;
  • Whether the negotiations concerning the terms and conditions of the proposed sale were conducted at arm’s length;
  • Whether the sale is in the best interests of the bankruptcy estate and its creditors
  • Whether the purchaser has acted in good faith and the sale itself is being made in good faith [we’re big on “good faith” in bankruptcy law]

Unless the answer to all of these is “yes”, the sale will not be approved. In addition, there are several other requirements designed to protect the interests of creditors who have previously been granted lien on the assets to be sold as collateral for loan or other credited previously given to the Debtor. Essentially, if the purchase price is not enough to pay all of these creditors in full, the sale cannot be approved over the objection of the creditor unless applicable non-bankruptcy law could force the creditor to accept the situation. Because junior lienholders sometimes do not get paid in state court foreclosures, it has been generally assumed that this requirement can be met fairly easily.  

 

7.                  Who decides whether a 363 sale is appropriate?

The bankruptcy judge presiding over the case will determine if the requirements for approval of a 363 sale have been met.

 

8.                  How is a 363 sale different from a plan of reorganization?

It is sometimes argued that the approval of a 363 sale of substantially all of a bankrupt company’s assets early in a bankruptcy will have the practical effect of deciding many important issues that would ordinarily arise in due course during the bankruptcy proceeding and be addressed as part of the plan confirmation process.  

 

A sale of assets in bankruptcy can often be accomplished more quickly with a 363 sale rather than in the context of a plan of reorganization.  A 363 sale requires only the approval of the Bankruptcy Judge while a plan of reorganization must be approved by a substantial number of creditors and meet certain other requirements to be “confirmed.” A plan of reorganization is much more comprehensive than a 363 sale in addressing the overall financial situation of the Debtor and how its exit strategy from bankruptcy will affect creditors. 

 

Additional statutory protections for creditors and greater emphasis on valuation and feasibility of the post-sale business operations made possible by the sale also exist in the case of a plan of reorganization. In addition, there are also statutory notice periods entailing several weeks applicable to the plan confirmation process that cannot be shortened (other than possibly in the context of a prepackaged bankruptcy).

  

A proposed plan of reorganization is a lengthy and extremely detailed document which classifies the claims of various sorts of creditors into designated “classes” and then prescribes various “treatment” concerning how those claims will be dealt with. The Bankruptcy Code requires that the proposed Plan of Reorganization be accompanied by a “Disclosure Statement” similar in purpose and appearance with a prospectus used in the sale of stock and securities. The Disclosure Statement explains how the debtor came to be in bankruptcy and must provide "adequate information" about a plan and its implementation and consequences such that a hypothetical investor would be able "to make an informed judgment about the plan".    

 

9.                  What is a “sub rosa” plan? 

A “sub rosa plan” is what opponents of a 363 sale may call it if they believe the terms and conditions of the proposed 363 sale extend well beyond what they believe is the meaning and purpose of Section 363 of the Bankruptcy Code. The argument here is that except in the context of highly perishable goods, a sale of substantially all of a company’s assets must only be done in the context of, and with the protections of creditors inherent in, the plan confirmation process and a 363 sale is intended only for more piecemeal disposition of assets.

 

10.              What happens to creditors after a 363 sale occurs?

Once a 363 sale has been consummated and the purchase price paid, the bankruptcy court will decide how the proceeds of sale are allocated among secured creditors with liens on the assets sold. In the event additional proceeds exist, they will be allocated to unsecured creditors and other claimants in accordance with the statutory provisions of the Bankruptcy Code.

 

11.              What is a “stalking horse”? 

A “stalking horse” is the initial prospective buyer willing to set forth specific price and terms for the purchase of the bankrupt company’s asset or assets. The prospective purchaser usually negotiates for payment of a break-up or topping fee to it in the event it does not wind up being the approved purchaser to ensure that any competing bid is meaningfully more valuable to the bankrupt company.  

 

12.              What is a “topping fee” or “break-up fee”? 

A “topping fee” or break-up fee” is a specified amount to be paid to a stalking horse in the event that it is not the successful bidder for the assets. The theory is that it will compensate the stalking horse for certain “due diligence” it undertook and ensure that any competing bid is meaningfully more valuable.

 

13.              What are “bidding procedures”?

“Bidding Procedures” are the procedural rules proposed by the Debtor concerning the process and form by which offers for the asset or assets to be sold should be made by parties other than the “stalking horse”, if any. They are often included as part of the 363 Motion as a means of keeping the process orderly and avoiding chaos, but are sometimes seen by other prospective purchasers as designed to chill competing offers by imposing onerous procedural requirements. 

 

14.              What is a “credit bid”?

A “credit bid” occurs when a secured creditor can bid up to the amount of the debt owed it by the Debtor for the purchase price of the assets to be sold without having to come out of pocket for any actual cash. The difference between the amount owed and the credit bid will then become the amount of the lienholder’s unsecured claim.  

 

15.              Is there any recourse after a Bankruptcy Court approves a 363 sale? 

An Order approving a 363 sale can be appealed either to the applicable U.S. District Court or the Bankruptcy Appellate Panel for the applicable U.S. Circuit Court of Appeals, if there is one. Certain statutory provisions have limited the ability of any successful appeal to unwind the transaction, but more recent cases have raised some questions about the proper interpretation of those provisions. 

 

16.              How are the Chrysler and GM bankruptcy 363 sales the same or different from the ordinary 363 sale? 

The Chrysler and likely GM contemplated 363 sales are considerably more complex than a typical 363 sale and involve a number of other provisions adjusting relationships with various creditors such as dealers and suppliers that would more often be found in a plan of reorganization. They are also proceeding much more rapidly than would ordinarily be the case.

 

PREVIOUS POSTS ON THIS BLOG ABOUT CHRYSLER AND GM BANKRUPTCIES:

 

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Posted on May 17, 2009 by Teri Rasmussen

Chrysler Bankruptcy Mid/Late May Roundup and Timeline: Lots to Watch in the Coming Days

For anyone thinking the important part of the Chrysler bankruptcy is just about over, take a peek at the 25-page Notice of Agenda on Matters Scheduled for Hearing on May 20, 2009 which also helpfully lists the various objections filed so far to particular Motions filed by the Debtor.  In addition, as of today, more than 900 separate pleadings have already been filed (in the two weeks since Chrysler filed its bankruptcy petition) and many are unresolved at this point.  One thing is for sure, however - whatever happens in the Chrysler bankruptcy case this week and next is going to make a BIG difference -- so try to pay attention for a few days. 

MAY 19 is a critical day because that is the deadline for filing an objection to the sale itself.   

MAY 20 (the day before my 50th birthday) is an equally HUGE day for that is the day by which any competing bids for the purchase of Crhysler's assets as described in its Motion.must be submitted.  And of course there are hearings on that day on all those other matters listed in the aforementioned Agenda.

Then, on MAY 27, the actual hearing on whether the sale extravaganza proposed by Chrysler will be permitted to go forward as contemplated will occur.  There are already several "limitied objections' of one sort and another filed by several different sorts of parties.  It could be the proverbial case of the "1000 cuts" that does Chrsyler's grandiose plans in - we'll have to wait and see, 

One of the more interesting objections/challenges to the proposed sale (and attendant bells and whistles in the form of asumption/rejection of contracts) was filed just yesterday (yes in this day and age of electronic filing, you can even file pleadings on the weekends from the comfort of your laptop) as a "Statement' by the Chrysler National Dealer Council.   It purports to set forth certain facts which the Council believes the Court should take into account when considering the Motion and claims:

  1. Dealers produce revenue, not expense for Chrysler.
  2. Dealers absorb inventory risks.
  3. Dealers invest in facilities and customer service.
  4. Maintaining the dealership network is essential to Chrysler's future.

Basic concept is that dealerships are a positive force and shouldn't just be kicked to the curb.  Not really any bankruptcy law arguments here, but hey, since we don't appear to be following its provisions anyway (also click here for a similar viewpoint), why not give the political counter-argument.

Closest to home, Ohio Attorney General Richard Cordray has filed a Limited Objection on behalf of the Ohio Bureau of Workers' Compensation which also takes a "consequences of approval" approach to challenging the sale as currently contemplated..  His press release indicates that the objection was made "in an attempt to protect Ohio's worker compensation system".  The Limited Objection itself is short and to the point and contends:

  • Leaving Chrysler's Ohio workers' compensation liabilities in Old Chrysler is likely to result in Ohio's Bureau of Workers' Compensation picking up the tab because Old Chrysler won't have enough money to pay these obligations.  This would be a "devastating blow" to the fundamental structure of the whole system and could harm both other self-insured Ohio employers as well as workers.
  • If the sale goes through as contemplated, Chrysler Newco won't be eligible for self-insured status.in Ohio which I think means it would cost it more money to operate in Ohio (to which I suppose one answer is well, we weren't planning on continuing to operate in your State anyway.) 

>>>> One interesting thing that had me scratching my head was the Pro Hac Vici Motion to be allowed to participate in the case filed by Victoria Garry, the Assistant Attorney General handling the matter who I am sure is a very good lawyer.  She says she is admitted to the bars of the State of Ohio, Sixth Circuit, and Eastern and Western Districts of the U.S. Bankruptcy Court  - only thing is that in Ohio there is no Eastern and Western District for Bankruptcy Court; only Southern and Northern. 

Oh yeah, there was this Motion to get rid of a bunch of dealerships effective June 9.  Objections are due May 26 and a hearing is set for June 3.  Here's Chrysler's press release on the subject and the exhibit listing the unlucky dealers.  The dealers are located all acorss the nation (well I think Alaska might have escaped) and more than forty (of the 789) are located here in Ohio. 

  • For an unsual perspective on the dealership closings, visit this Small Town Chrysler... Memories Served post on the Zero Hedge blog which has the interesting tagline "On a long enough timeline, the survivial rate for everyone drops to zero."

So that's some of the most recent highlights of the Chrysler bankruptcy saga and what to look for the rest of the month.  Maybe, just maybe, the fat lady hasn't yet sung.

P.S. One of these days I will get back to the old beat and stop writing so much about Chrysler and GM, but that may not be for a while.  I'll at least try to slip in some nobankruptcy posts along the way.

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Posted on May 9, 2009 by Teri Rasmussen

Alas,Bankruptcy Law, We Knew Ye Well - Consequences of Chrysler's 363 Sale

They say that "hard cases make bad law".  And that's never been more true than in the current Chrysler (and soon to follow, GM) bankruptcy.  In the practice of bankruptcy law, we really do talk a lot about what's "fair and equitable".  And having a transaction as complex as that proposed by Chrysler -- or at least the bidding procedures designed to make any other alternative near impossible -- approved in a matter of days seems to me to turn this fundamental underlying value of bankruptcy law and practice on its head.

When I started law school, I had no idea I would become a creditor-oriented bankruptcy lawyer in Central Ohio.  Having now been one for more years than a lady cares to count, I've always felt that bankruptcy law was relatively internally consistent in comparison with other areas of law.  And it seemed to make sense and strike a balance between debtors and their creditors.  Up to now, once you understood the basic fundamental principles, concepts, and underlying values of bankruptcy law and practice, you could often reason your way to what the applicable rule would be even if you couldn't remember the exact statutory provisions.  And that has always seemed good to me. 

Now, in the name of a perceived (and perhaps, even actual) urgency and expediency, the Chrysler (and soon to be GM) bankruptcy are perverting and destroying that unifying fabric of bankruptcy law.  Others have posted on some of the damage being done, most notably Steve Jakubowski of The Bankruptcy Litigation Blog who asks "Will the 'Absolute Priority Rule' Kill the Sale?" and thoughtfully analyzes (and has deservedly received a lot of notice for his post) whether the Chrysler sale is "Testing the Limits of Section 363 Sales"

For me, it is the desecretion of the process of achieving "confirmation" of a "plan of reorganization" that bothers me the most.  Instead of requiring this process to play out, Judge Gonzalez appears to be allowing Chrysler to bypass it entirely, thereby corrupting the entire "363 sale" procedure. The"preliminary sale order", and especially the "Bidding Procedures" it approves, are tantamount to a"plan of reorganization", but alleviate Chrysler's need to comply with certain  procedures required in that situation.

Why is this bad?  Because it essentially wipes out the whole plan confirmation process.  I am sure there will be an effort to say that this (and perhaps GM as well if it also goes this route) present unique and special circumstances.  And they probably do.  However, any business bankruptcy debtor attorney worth his or her salt will now emphatically assert  -- as Chrysler's lawyers have -- that there is simply no time to follow the lengthier statutory plan confirmation procedures and that the value of the business is drastically depreciating with every day's delay.  They will also insist  -- as Chrysler's lawyers have -- that nothing will do but to require any bidders to mark up their proposed Purchase Agreement.  It might also encourage to wait to file until it absolutely positively IS that sort of emergency situation.   

And perhaps the most tantalizing of all Chrysler's arguments is that bankruptcy is all about the debtor and should be interpreted in whatever way is most likely to keep the debtor from having to liquidate --

in a business reorganization case, among all the other policies served by specific provisions of the Bankruptcy Code, this fundamental objective of preserving the debtor's businss as a going concern is paramount.

Now that's a principal every debtor can get behind and use to justify almost anything.   

>>>> How often debtors succeed with these arguments and tactics will make a big difference in the Chapter 11 bankruptcy process for years to come.

Once upon a time, a 363 sale was reserved for disposing of certain selected assets.  As time went on, it became more common to also use it when selling all of the assets of a company.  But it was still mostly, if not entirely, the SALE OF ASSETS,  No assumption of leases and contracts or other fancy stuff.

If a debtor wanted to load up a proposed 363 sale with all sorts of bells and whistles -- as Chrysler has -- it had to file a proposed "Plan of Reorganization", accompanied by a "Disclosure Statement", instead, explaining how the plan for exiting bankruptcy would work.  Section 1123 of the Bankruptcy Code sets forth what the plan must contain.  Section 1125 requires the Disclosure Statement  to provide "adequate information" about a plan and its implementation and consequences such that a hypothetical investor would be able "to make an informed judgment about the plan".    

Once a proposed plan and Disclosure Statement are filed,  Bankruptcy Rule 3017 requires at least 25 days notice of a hearing to determine if the Disclosure Statement is satisfactory. If it is, the plan and Disclosure Statement are circulated to all creditors who then have an opportunity to vote on the plan.  For each "class", i.e. grouping, section 1126 requires that creditors holding more than half of the claims in number and at least two-thirds in amount must vote to "accept" the plan.  Another 25 days must go by before the "confirmation" hearing can be held.  When that day comes, the debtor must deal with any objections to the plan such questions about feasibility and meet the requirements of section 1129 of the Bankruptcy Code. in order to have the plan successfully "confirmed".

Is that a lot of work?  You bet!  And it's one reason so-called prepackaged bankruptcies (prepacks to those in the biz) became popular as a way to at least cut down on the amount of time. 

But what it also does is give those who would be most affected by the debtor's bankruptcy exit plan time and information to evaluate the course advocated by the debtor.  It also requires a fairly broad base of support for the debtor's proposal.  Unlike a 363 sale in which an 800 pound gorilla like Chrysler and its high powered attorneys can quite literally steamroll over smaller and in this case perhaps not entirely organized yet creditors, the plan confirmation process recognizes and allows these parties more of a chance to participate.  Granted, they may still be largely ignored, but at least collectively they do have at least some voice. 

It's possible that the sale might still be rejected on these sorts of grounds -- technically a hearing on the Sale Motion itself doesn't occur until May 27 -- but it seems a little silly to allow bidding to move forward only to reject the product of those activites.

American law and society have always recognized the importance of individuals and have many safeguards to protect individual rights.  What I fear most is that the legacy of the Chrysler/GM bankruptcies will be a bankruptcy process left in tatters.  And somehow less "fair"

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Posted on May 5, 2009 by Teri Rasmussen

Chrysler Meets Bankruptcy - The Reality Show... And We're Just Getting Started!

So it's been SIX whole days (counting the Petition Date) now that Chrysler LLC has been in Chapter 11 bankruptcy, there's been two hearings before the bankruptcy judge, and even Chrysler isn't claiming anything of any true lasting importance has been determined so far.  Its latest press release  spills as much ink describing the company as it does trumpheting the  interim approval  by the Bankruptcy Court of DIP (aka debtor-in-possession) financing and permission to use "cash collateral" (i.e. proceeds from collection of accounts receivable and disposition of other collateral)  And as bankruptcy insiders know, if you don't get these pretty quick after you file, the case will soon be DOA.    

Center Stage - The 363 Motion

The 363 Sale Motion, a 250 page submission in total, was  filed the evening of Sunday, May 2.  For an excellent concise summary of the contemplated timeline (surprise!! it's more than two weeks!) and transactions encompassed in the proposed sale, visit "Chrysler Seeks  the ultimate 363 Sale as the Treasury Department Dictates the Pace" posted by Stephen Sathers at his A Texas Bankruptcy Lawyer's Blog

Even the Motion's title sounds like there's a lot to do.  Leaving off the begining part referencing a bunch of Bankruptcy Code and Bankruptcy Rules, the Motion indicates that it seeks

(i) AN ORDER (A) APPROVING BIDDING PROCEDURES AND BIDDER PROTECTIONS FOR THE SALE OF ALL OF THE DEBTORS' ASSETS AND (B) SCHEDULING A FINAL SALE HEARING  AND APPROVING THE FORM AND MANNER OF NOTICE THEREOF; AND (II) AN ORDER (A) AUTHORIZING THE SALE OF SUBSTANTIALLY ALL OF THE DEBTOR'S' ASSETS, FREE AND CLEAR OF LIENS, CLAIMS, INTERESTS AND ENCUMBRANCES, (b) AUTHORIZING THE ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES IN CONNECTION THEREWITH AND RELATED PROCEDURES, AND (C) GRANTING CERTAIN RELATED RELIEF  

  • The Summary of the transaction (well, really transactionS, plural), found beginning at the bottom of page 25, is 6 1/2 pages alone.
  • The Motion itself is 52 pages
  • The Purchase Agreement, attached as an exhibit, is nearly 100 pages long, even excluding the multiple signature pages, and that  DOES NOT include any exhibits to the Purchase Agreement
  • The proposed Bidding Procedure Order is more than 25 pages, not counting various forms of proposed notices
  • And then there's the additional 35-page supporting Memorandum of Law 

And Trying to Steal the Scene, the Objections....

>>>>>  so with all that, it's probably not too surprising that a few Objections to the proposed sale and otherwise have been filed.  Many fall back on the old chestnuts that bankruptcy lawyers always bring out in these situations and which to me seem particularly apt for the current circumstances - namely:

  • due process requires that we be given more time to figure out what's been proposed and figure out whether we like it and if not, why 
    • things are just moving too fast
    • we're going to need more time to get organized here
  • the debtor has stacked the proposed bidding procedures to favor the initial "stalking horse" , thereby making it exceedingly and unreasonably difficult for anyone else to participate

The Biggie by the NonTARP Lenders.  The earliest and most interesting  (in the sense that this is one to watch) objection to the bidding procedures and proposed 363 sale are the pleadings filed by a group calling itself the Non-TARP Lenders  (would that be a good name for a band?  I'm thinking that just "TARP Lenders" sounds like it has more promise).  These include  the initial "preliminary" objection filed May 4, followed by a "First Supplemental" objection filed today.  in addition to making the sort of objections referenced above  - which i really do think have lots of merit in this case -- the objections also contend that because of the number and complexity of actions and transactions involved, Chrysler is impermissibly trying to get what is really a "disguised" 'sub rosa plan of reorganization approved . 

This is an important objection and basically complains that Chrysler is trying to do a comprehensive plan of reorganization without complying with the procedures and protections for creditors which would usually accompany that process.  And while it's not specifically mentioned, that absolutely WOULD slow things down given that there are statutory minimum 25 day periods for circulation of a "Disclosure Statement" as well as mandatory hearings that would almost certainly be fierce brawls.  WATCH THIS ISSUE as a ruling on it could completely transform the Chapter 11 process for even the most humble and ordinary Chapter 11 out here in the fly-over states those of us who live here call the Midwest.

Other Objections to Sale.  There are also some objections by vendors (click here for one of them) focusing on on the part of the propsed sale where supply contracts with them are to be sold to Fiat or whoever the successful purchaser is.  According to these objections, the new purchaser would have up to 90 days to decide whether to assume of reject the contract, but the supplier would still be obligated to deliver goods during this period.  There's also one by Plast-o-Foam whcih appears to deal with reclamation claims with respect to goods recently supplied to Chrysler, but not paid for. 

Objections Apropo  of Nothing.  Then there's a new objection today by Chrysler Financial Services Americas LLC regarding the part of the deal where Chrysler wants to enter into a financing arrangement with GMAC Master Financial Services.  According to the Objection, Debtor Chrysler won't show them the Term Sheet even thought they would be directly affected.  Sounds like the sort of thing any sensible debtor would not want to be distracted by.

And now, quite literally in the last hour or so while I've been writing this post, a Motion for Adequate Protection by CSX Transportation , Inc., a rail carrier concerned about its status, has been filed   The Motion seeks adequate protection for its "common carrier" lien which it alleges can prime security interests.

>>>>>>>  These are only the highlights in the last couple of days.  And, really, the bankruptcy process and players aren't  even warmed up yet.  Everyone's in for a heckuva a rollercoaster of a ride!

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Posted on May 3, 2009 by Teri Rasmussen

EXTRA! EXTRA! Get Your Chrysler Bankruptcy Info Here!

When you think the Chrysler bankruptcy is one of the most intellectually fascinating things ever to come down the pike ('cept maybe the coming GM extravaganza) and there's more interest amongst the general public in the swine, aka H1N1, flu, you know you're a purebreed bankruptcy law wonk.  For those of like persuasion or who just want a handy reference guide, here's the basic 411 on the Chrysler bankruptcy:

  • We must of course begin with the Chrysler's press release.
  • In what might be seen as a dry run for a GM filing in about a month, Chrysler LLC and many of its subsidiaries and affilated companies filed Chapter 11 bankruptcy on April 30, 2009  - which now becomes the "Petition Date", an important dividing line -- in the U.S. Bankruptcy Court for the Southern District of New York, Case No. 09-50002.  After only one day, there were already more than 130 pleadings filed.  By Sunday afternoon, the Court's docket sheet shows 189 pleadings.  
    • For those with PACER access, the Bankruptcy Court has established a separate URL for Chrysler pleadings
    • For those without access to PACER, the case can be followed directly by visiting the Chrysler Restructuring website which contains a docket containing PDFs of all of the court pleadings, as well as  press releases by the company, and information and FAQ for various sorts of creditors and stakeholders.   For those living under a rock for the past few months, it also has this useful Chapter 11 Fact Sheet
  • The case has been assigned to Judge Arthur J. Gonzalez whose biographical information is available on the website for the U.S. Bankruptcy Court for the Southern District of New York.  He joined the bench in 1995 and previously handled the bankruptcies of Enron and WorldCom simultaneously.  For more information about Judge Gonzalez, click here.
  • Chrysler will be represented by the international law firm of Jones Day, headquartered in Cleveland, Ohio, led by Corinne Ball out of the firm's New York office.  Click here for a recent interview with Ms. Bell. 
  • The Chrysler bankruptcy petition is fairly unremarkable except that it includes identification of the Fifty Largest Unsecured Creditors instead of the usual Twenty Largest .
  • For those wanting an in-depth overview of how Chrysler sees the game plan, the Affidavit of Ronald E. Kolka in Support of First Day Pleadings is a "must'" read.
  • More than TWENTY "first day" motions were filed.  Sparing you the long technical description, these essentially dealt with the following:
    •   Procedural
      • Joint Administration of bankruptcies of all Chrysler entities.  Intended to increase efficiencies.  Cases not "substantively consolidated" and debts and creditors of each entity remain separate.  GRANTED
      • Reassurance regarding application of automatic stay and related provisions of Bankruptcy Code      
      • Seeking permission to file consolidated list of Top Fifty Unsecured Creditors instead of each entity having to file their own Top Twenty
      • Appointment of Epiq Bankruptcy Solutions, LLC as Claims and Noticing Agent  - basically an outsourcing of the procedural aspects of proof of claim filing and general noticing; very common in large bankruptcies 
      • Seeking to extend deadline for filing bankruptcy schedules and statement of financial affairs '[d]ue to the substantial size, complexity and geographic reach of their operations and the press of business preceding the filing of these cases" -- very common in large cases; nornally these would be due within fifteen days after the Petition Date (or May 15, 2009).
      • Procedures for the assertion and resolution of claims involving recently delivered goods and reclamation claims
      • Compensation arrangements for professionals, i.e counsel for Chrysler and related professionals
      • Seeking expedited" hearing on "first day" motions
      • Establishment of case management and scheduling  procedures      
      • Retention of counsel and other professionals for Chrysler
      • Permission for Jones Day attorneys not admitted to practice in New York to participate in case 
    •   Commercial Relations
    • Business Operations
  • Here's a wrap-up of Friday's hearing.
  • The United States Treasury issued this press release (and the White House issued an identical press release) describing the government's  view of the proper exit plan for Chrysler 
  • The Am Law Daily takes a look at the holdout secured creditors.
  • A media teleconference  presented by the American Bankruptcy Institute can be heard by clicking here and following instructions

 

  • Chrysler 'first day" motion hearing Round II kicks off on Monday, May 4, 2009 at 10  AM;  spectators may use this handy agenda prepared by Jones Day to keep up

>>>>  and finally, some interesting commentary from some of my fellow bloggers:

UPDATE: After a three day hearing which extended into the evening each day, closing arguments were made late Friday afternoon and early evening.  Judge Gonzalez is expected to give his ruling regarding the 363 sale sought by Chrysler on Monday morning, June 1.  It is likely that whatever the ruling, it will be immediately appealed.  And yes, Monday is also the day GM is expected to file its Chpater 11 petition.  BIG BIG day for all of us bankruptcy nerds!!

For more information about 363 sales, visit my post 363 Bankruptcy Sale - What You Need to Know to Understand What's Going On with Chrysler and GM

 

UPDATE (6/1/09)  Late Sunday night, judge Gonzalez issued an opinion approving the proposed sale. 

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