Chrysler Sale Faces Challenge in Appeals Court

By Tomoeh Murakami Tse
Washington Post Staff Writer
Wednesday, June 3, 2009

NEW YORK, June 3 -- A federal appeals court agreed late Tuesday night to hear an appeal from a group of lenders seeking to block the sale of Chrysler's assets, a move that could delay the automaker's exit from bankruptcy proceedings.

The U.S. Court of Appeals for the Second Circuit accepted the appeal from a coalition of Indiana pension funds that has sought to block the sale of most of Chrysler's assets to a group led by Italian automaker Fiat, according to Chris Conner, spokesman for Indiana State Treasurer's Office.

A hearing is scheduled for Friday, Conner said.

The funds, which hold about $42 million of Chrysler's $6.9 billion in secured debt, claim the terms of the sale violate their rights as secured lenders by limiting their ability to recover all of their original investment in the company.

The appeal throws an element of uncertainty into the Obama administration's carefully orchestrated plan to speed the ailing automaker through bankruptcy court.

Chrysler won approval for its reorganization late Sunday night, when U.S. Bankruptcy Judge Arthur J. Gonzalez set aside the objections of lenders and dealers and ruled in favor of the government plan, just 31 days after the company filed for Chapter 11 protection.

Gonzalez said Tuesday that the case could be heard by the appeals court, skipping district court, which normally would be the next stop for an appeal of a bankruptcy ruling. It was a move that had been sought by Chrysler, which wants the process to move as quickly as possible.

"[T]his case involves a matter of public importance, and an immediate appeal may materially advance the progress of this case," Gonzalez wrote.

Since the company's filing, Chrysler's lawyers have argued repeatedly that the carmaker's value fell the longer it stayed in court proceedings. Fiat has the option to back out of the sale if it does not close by June 15.

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