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Saturday, June 13, 2009

Courts - Two interesting look-backs today on the Chrysler bankruptcy

Charles Lane, economics columnist for the Washington Post, has a column, dated June 14th, headed "A Rescue that Overreached?" A few quotes:

Nationalizing General Motors, and part of Chrysler, may or may not turn out to be a good deal for the taxpayers. I have a different concern, though: Was it constitutional?

With hundreds of thousands of jobs on the line, this may seem a churlish question. Then again, the temptation to bend the rules of democracy is always greatest in a crisis. It wasn't so long ago that a president claimed the power to do all sorts of questionable things -- from waterboarding to electronic surveillance -- because the country faced a crisis. * * *

In other words, sometimes the president can get away with stretching his authority because Congress would rather not be held accountable for formally defining it.

The GM-Chrysler deals appear to be such an instance. But the constitutional ambiguity surrounding this use of TARP may prove tolerable only as long as the policy itself is. If GM and Chrysler start gobbling up even more funds -- or if additional non-financial companies get bailouts -- more Americans might question the president's power to select certain firms for federal rescue. Fortunately, the TARP statute expires at the end of this year. Let's hope the next version is a little less open to interpretation.

"Creditors Cry Foul at Chrysler Precedent " is the heading to this story today in the WSJ, reported by Ashby Jones and Mike Spector. Some quotes:
Chrysler Group LLC's restructuring is altering the bankruptcy landscape well beyond the auto industry.

Within days of a bankruptcy-court judge's approval of the government's plan to sell Chrysler to Fiat SpA and leave creditors with big losses, a lawyer in the bankruptcy case of the National Hockey League's Phoenix Coyotes invoked Chrysler in trying to push through the speedy sale of the team.

Should the judge approve that move and allow the Coyotes to be sold quickly, as Chrysler was, it could put some creditors out in the cold, leaving the NHL and other investors without the kind of input typically afforded by bankruptcy law. * * *

The Obama administration's plan for pushing through Chrysler's restructuring has been criticized by some for going too quickly, which led to an end run around creditors, who got little say in the process. A few creditors objected in court, saying their rights were being denied, but they lost at all levels, including at the Supreme Court.

The Obama administration maintains that it used established bankruptcy procedures, and that extraordinary measures were needed to prop up an industry that could cripple the U.S. economy if it collapsed.

Lawyers who represent banks, hedge funds and other creditors fear the Chrysler precedent could be used to allow companies to get around established rules for reorganizations, and not just in extraordinary circumstances.

The point of contention with Chrysler was a procedure called a "363 sale," which refers to a section of the U.S. Bankruptcy Code. Such sales are typically used to shed assets in bankruptcy proceedings, such as a building or subsidiary that needs to be sold quickly to maximize its value, and can be done without creditor approval. But critics said Chrysler used the procedure to restructure the entire company.

General Motors Corp., which filed for bankruptcy protection June 1, plans to conduct a similar sale to sell its "good" assets to a new GM with fewer brands and less debt.

Lawyers are seizing on these examples to invoke the need for speed, claiming emergency circumstances.

Posted by Marcia Oddi on June 13, 2009 11:35 AM
Posted to Courts in general