The latest news in the Chrysler drama was Justice Ruth Bader Ginsburg saying the bankruptcy judge's orders allowing the sale "are stayed pending further order" by her or by the Supreme Court. This is the event that most said would not happen. Likely it is an administrative extension so the court can determine whether Indiana's request has merits. Hopefully it will lead to the restoration of creditors rights.
Many, including myself, have opined that the 363b sale is a sub rosa bankruptcy plan. For informational purposes, a "sub rosa plan" is a term that recognizes the effect that a Section 363 sale of assets can have on the DIP's reorganization efforts. In Chapter 11, creditors get certain protections as part of the Chapter 11 Plan confirmation process, including a formal disclosure statement, the right to vote on the Plan, and make legal objections to the proposed manner of distribution under the "absolute priority rule", etc. The sale of assets under Section 363 has rules and is done under bankruptcy court supervision, but it does not include all of the creditor protections that are part of the Plan confirmation process.
The court disagreed, stating (as paraphrased and used as support by the Solicitor General):
The bankruptcy court acknowledged that a bankruptcy estate’s sale of assets cannot be approved if the sale “would amount to a sub rosa plan of reorganization.” App., infra, 16. The court found no such subversion of the requirements of Chapter 11 here, however, because the significant and ongoing depreciation of Chrysler’s assets made it crucial to conduct the sale in time to preserve the going-concern value of many of those assets.
The old melting ice cube. But wait: Chrysler LLC was selling cars at a higher rate than the U.S. industry last month, buoyed by incentives of as much as $6,000 and President Barack Obama’s assurances on the automaker’s survival. Chrysler's sales fell about 30 percent through May 18, less than the U.S. market’s drop of as much as 33 percent, said Gary Dilts, senior vice president of consumer-research firm J.D. Power & Associates, which collects data from 6,000 dealers.
So, we have a "plan" that is premised on the quick "surgical" sale of assets to a new company (controlled by an unsecured class of creditors) in order to retain the value of Chrysler's assets. Yet, the assets had a better month than the industry. The other reason is that if the sale is not consummated by June 15, Fiat (FIATY.PK) could walk.
Given FIAT's recent Opel defeat and their aspirations to become a global automotive company, will they walk? They are getting a better deal than the UAW, with no cash in and all upside and the administration thinks they will just walk away. Yeah, right.
So, what is the hurdle?
“Denial of [an] in-chambers stay application[] is the norm; relief is granted only in ‘extraordinary cases.’” To justify such relief, applicants must show, at a minimum, “(1) ‘a “reasonable probability” that four Justices will consider the issue sufficiently meritorious to grant certiorari * * * ; (2) ‘a fair prospect that a majority of the Court will conclude that the decision below was erroneous’; and (3) a likelihood that ‘irreparable harm [will] result from the denial of a stay.’”
Pretty high hurdle, it seems. Hopefully, the court will take the case and at least restore the appearance of rule of law. That said, I do not believe that the court will take the case due to the implications for both Chrysler and, more importantly, GM (GMGMQ.PK).
Disclosure: No position in Chrysler, long GM bonds.
