Supreme Court Delays Chrysler Sale, Bankruptcy Exit

A neon sign shines in the showroom window of a Chrysler dealership in Chicago, Illinois which is scheduled to close today. (Scott Olson/Getty Images)

NEW YORK—The U.S. Supreme Court on Monday granted a delay of Chrysler LLC’s sale of assets to Italy’s Fiat S.p.A., preventing the ailing automaker from a quick bankruptcy exit.

A bankruptcy judge in the federal appeals court of New York had given Chrysler approval last week to sell its assets to Fiat as a part of the restructuring plan brokered by the federal government, but Supreme Court Judge Ruth Bader Ginsberg granted a request for delay from the Indiana state pension and construction funds, which objected to Chrysler’s restructuring.

Justice Ginsberg’s order said that the bankruptcy court’s approvals “are stayed pending further order” from the U.S. Supreme Court. She or other justices could clear the deal in the next several days.

Indiana state pension fund invested more than $40 million into Chrysler, but is slated to recover less than 30 percent on every dollar under the current restructuring terms.

The funds are challenging the ruling, arguing that the government’s usage of TARP (Trouble Asset Relief Program) funds for Chrysler’s bankruptcy is unconstitutional, and that it was unfair that certain unsecured creditors will receive higher priority than secured creditors, such as the funds.

“The issues on appeal call on the Court to maintain the rule of law, even set against cries from others that the economy as a whole will benefit from the sale,” the funds argued in a 90-page brief filed on Monday.

But proponents of the Chrysler bankruptcy argue that the interests of a minority cannot outweigh the benefit of other, major Chrysler stakeholders.

In a brief filing on Monday, U.S. Solicitor General Elena Kagan wrote, “Even if the stay were continued for a short time and Fiat did not withdraw from the transaction, the consequences of delay for both Chrysler and the United States government would far outweigh any benefit to applicants.”

Fiat CEO Sergio Marchionne also supported the deal. In an interview with Bloomberg News, Marchionne said that Fiat would never walk away from its Chrysler deal and was optimistic that the June 15 deadline for bankruptcy completion would be met.

Chrysler filed for bankruptcy in April to emerge as a new company free of debt. Fiat would hold a 20 percent stake in the company, with an option to increase it to 35 percent.