Chrysler LLC, the 85-year-old carmaker still partially in bankruptcy as Old Carco LLC, won approval to liquidate under a
plan that may repay the U.S. almost nothing for its bailout and lets unsecured creditors keep any proceeds from a pending
lawsuit against Daimler AG.
U.S. Bankruptcy Judge Arthur Gonzalez in Manhattan on Tuesday approved Old Carco’s Chapter 11 liquidation, which resolves all remaining objections in the case that began on April 30, 2009. The day it filed, Chrysler agreed that Fiat SpA would pay $2 billion for a stake in the company while Chrysler kept the remnants, including $27 billion of debt, in bankruptcy. A federal appeals court in Manhattan upheld the sale.
“The relevant confirmation standards have been satisfied, therefore the court confirms the plan,” Gonzalez said.
About 98 percent of creditors had voted in favor of the plan, and 19 outstanding objections were resolved or overruled in a hearing Tuesday that lasted almost four hours. The company’s wind-down plan will become effective April 30.
“In 10 days it will be the anniversary of the filing,” Jeffrey Ellman, a Chrysler attorney, told Gonzalez, saying it was difficult to reach consensus on a wind-down plan for such a large company. He also spoke of the “extraordinary circumstances in which the bankruptcy was filed, for the company, the economy, and the country.”
“Extensive amounts of time have been spent to develop funding for the liquidation plan,” he added.
Ellman had said at a Jan. 21 hearing that a key issue was whether the company would have enough money to liquidate its remaining assets, given the U.S. had allotted only $260 million for wind-down costs.
The plan approved today was updated to include a $15 million “environmental reserve” to cover cleanup costs for hazardous waste at properties that Chrysler may not be able to sell, Ellman told Gonzalez. He said that of 21 properties that remained in bankruptcy, 10 had been sold, and six are in contract to be sold. The $15 million came out of the $260 million that the U.S. had already set aside, he said.
Objections resolved during the hearing included one from the Wisconsin Department of Natural Resources, which was given permission to sue a trust, called the “environmental reserve,” if Chrysler doesn’t comply with environmental orders at a site of its old facility in Kenosha, Wisconsin.
Michigan’s Natural Resources Department, which had objected based on the lack of funds to clean up potentially hazardous materials at one old manufacturing facility, at 6700 Lynch Road in Detroit, withdrew its objection. Under an agreement, Chrysler will create a trust funded with $500,000 for the property, according to court documents.
Under an outline already approved by Gonzalez Jan. 21, the remainder of the company will wind down, giving the U.S. no predicted recovery on its $5 billion loan under the Troubled Asset Relief Program. The U.S. and Canadian governments may receive a small recovery from liquidated assets such as the sale of Chrysler’s employee cars.
A $4 billion loan prior to the bankruptcy was increased to $5 billion, and the U.S. can make a credit bid on any assets that are to be sold, according to the wind-down plan. Creditors with “other secured claims” are estimated to get all of the $20.6 million they are owed. The recovery for unsecured claims is “undetermined.”
U.S. taxpayers are likely to lose $30.4 billion of their total $81.1 billion investment in Chrysler, General Motors and auto-supply companies, according to a December report from the Government Accountability Office. At the time, taxpayers’ net investment in Chrysler was $14.3 billion, according to the GAO.
Investors who had challenged the bankruptcy sale, including the Indiana State Police Pension Trust, had argued that Treasury Secretary Timothy Geithner violated the Constitution by using TARP money to finance the sale, and had their arguments overruled in the appeals court.
Recovery for unsecured creditors will come from any proceeds of litigation with Daimler. According to court documents, the suit on behalf of Old Carco names individual defendants for breach of fiduciary duty, and Daimler for aiding and abetting a breach of fiduciary duty.
Chrysler’s creditors sued Daimler in August, seeking unspecified “billions” that Daimler allegedly stripped from the automaker in 2007, just before selling it to Cerberus Capital Management LP. Daimler knew in 2006 that Chrysler was a failure, burdened with debt and declining sales, creditors alleged. They seek a jury trial to determine damages.
Chrysler Group LLC, a new company that bought some assets of Chrysler LLC, was created on June 10 and is 20 percent-owned by Fiat.