Pension Funds Lose Effort to Stop Chrysler Sale

August 6, 2009 ( - The 2nd U.S. Circuit Court of Appeals has decided that a U.S. Bankruptcy Court judge properly allowed the sale of Chrysler LLC's assets to Fiat SpA to move forward despite objections from three pension funds.

The latest 2 nd Circuit ruling follows up an earlier move by the appellate court allowing the deal to move forward without issuing an opinion. 

The 2 nd  Circuit appellate panel said in its latest pronouncement that The Indiana State Police Pension Trust, the Indiana State Teachers Retirement Fund, and the Indiana Major Moves Construction Fund were wrong to argue that Chrysler’s disputed auto manufacturing asset sale actually represented an impermissible bankruptcy reorganization plan (see Indiana Pension Plans Lose Shot at Blocking Chrysler Asset Sale ).

Without the Fiat sale, Chrysler’s value could continue to plummet. “[I]t was no abuse of discretion to determine that the Sale prevented further, unnecessary losses,” the court said, according to BNA.

The court explained in its opinion, that under Section 363(b), Chapter 11 debtors-in-possession can use, sell, or lease estate property outside the ordinary course of business, with the theory being that it sometimes is more advantageous for a debtor to begin selling as many assets as soon as possible to ensure that the assets do not lose value.

The common fear associated with these transactions is that one class of creditors may strong-arm a debtor-in-possession and bypass the requirements of Chapter 11 to cash out quickly at the expense of other stakeholders in a proceeding that amounts to a reorganization in all but name, so there must be a “good business reason” for a Section 363(b) transaction, the court said, according to BNA.

The 2nd Circuit opinion is here .