Friday June 5, 10:12 PM
Appeals court clears Chrysler exit from bankruptcy
By Amandine Ambregni
NEW YORK (AFP) - A US appeals court Friday cleared the way for Chrysler (Xetra: 710000 - news) to exit bankruptcy under an alliance with Italy's Fiat (Milan: F.MI - news) , dismissing a challenge from Indiana's state pension funds.
A three-judge panel from Second Circuit Court of Appeals upheld without comment a decision by a bankruptcy judge approving the US government-backed plan to create a new entity to buy the assets of the troubled number three American automaker.
The panel allowed the opponents of the plan until 2000 GMT Monday to obtain any further delay from the US Supreme Court.
The appeals court decision puts Chrysler on the verge of completing its quick exit from bankruptcy protection following a filing April 30 in a plan backed by President Barack Obama's administration to tie the group to Fiat.
A Chrysler spokesman said the company "welcomes the court's decision and appreciates the court's recognition of the need for a swift conclusion to this process so we can quickly start building the new car company."
Judge Arthur Gonzalez, in an order approving the Chrysler reorganization late Sunday, agreed to allow the planned tie-up with Fiat to be completed rapidly.
The judge said he agreed to the accelerated plan in view of arguments from an adviser to the White House auto task force that the automaker is losing 100 million dollars for each day the plan is delayed.
Gonzalez waived the traditional 10-day stay, or delay, for the plan to be implemented.
Chrysler has idled its factories and said that Fiat, the only partner apparently able and willing to step in, could walk away if the deal is not finalized by June 15.
The plan gives Fiat a 20-percent stake in the Detroit (DETROIT.SN - news) group with a possibility of increasing that.
In return, Fiat will allow access to its technology to enable the US carmaker to make the smaller, greener cars that are increasingly in demand.
The new firm would be majority owned by the United Auto Workers (UAW) union, with small stakes by the US and Canadian governments, which would contribute some 10.5 billion dollars to the venture.
The emergency dismantling of Chrysler -- including the shutting down of hundreds of car dealerships -- and rebuilding of the company in partnership with Fiat is the first step in government attempts to save the auto industry from collapse.
The creditors filing the appeal, holding 42 million dollars out of 6.9 billion dollars of Chrysler debt, argued fundamental legal protections were ignored in a sale forced through by Washington.
The creditors -- three pension and construction funds from Indiana -- filed arguments earlier this week that state the carmaker "can be saved without trampling the law and the rights of the first lien lenders."
Lawyers for the funds have repeatedly suggested that bigger creditors, like Morgan Stanley (NYSE: MS - news) , only agreed to government terms, in which they recovered just part of their debts, because their own businesses were receiving government bailouts.
The government has also taken a 60-percent stake in General Motors (NYSE: GM - news) , which sought bankruptcy protection on Monday.
GM aims to emerge from bankruptcy protection as a leaner company within 60 to 90 days and has obtained an additional 30 billion dollars from the US Treasury to fund its restructuring.
Carmakers say they were hit by a financial tsunami last year when the crisis on Wall Street and in the mortgage markets led to a sudden drying up of credit, coupled with the start of recession.
Critics say the auto giants are themselves partly to blame following years of mismanagement and failure to invest in the smaller, more environmentally friendly cars made by foreign manufacturers like Fiat.
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