now be made on behalf of PCI and PGW, the Trustee may assert claims against this freed-up amount. So may the Receiver." The court also felt it was necessary to also carve out a reserve that would be protected by the automatic stay to allow for future losses of the Debtors. Although the record did not really provide the court with any concrete numbers, the court held that of the $10 million that is available under the policies, $7.5 million should not be subject to the stay. The court did not feel that it was appropriate to require insureds to file additional motions seeking access to the freed-up proceeds because it would just add a whole additional layer of work to the process. Instead, as noted above, it just released 3/4 of the proceeds to be paid out on a first-come, first-serve basis. When the $7.5 million was gone, Greenwich and XL Specialty may renew their motion for relief from the stay.

b. Sales

In re Chrysler LLC, 576 F.3d 108 (2nd Cir. 2009)

Facts: The facts of this case are familiar to most people in the country. In a nutshell, Chrysler LLC and its related companies ("Chrysler" or the "Debtor") filed for chapter 11 on April 30, 2009. Shortly thereafter, the Debtor filed a motion to sell (the "Sale") substantially all of its assets pursuant to § 363 of the Bankruptcy Code. Substantially all of the Debtor's operating assets were to be transferred to New CarCo Acquisition LLC ("New Chrysler") in exchange for $2 billion in cash as well as the assumption of certain liabilities. Financing for the Sale ­ including DIP financing ­ would come from the United States Treasury and Export Development Canada. Ownership of New Chrysler was as follows: An employee benefit entity created by the United Auto Workers union received 55%; the U.S. Treasury received 8%, Export Development Canada received 2%, and Fiat S.p.A., for its contributions, would receive 20% with rights to acquire more. A number of parties objected to the Sale. Among the objectors were the Indiana State Police Pension Trust, the Indiana State Teachers Retirement Fund, and the Indiana Major Moves Construction Fund (collectively, the "Indiana Pensioners" or "Pensioners"), along with various tort claimants. The bankruptcy court approved the Sale. The Pensioners, tort claimants, and others appealed.

Issue: Four issues were argued on appeal:

(1) Whether the Sale so "closely approximates a final plan of reorganization that it constitutes an impermissible 'sub rosa plan,' and therefore cannot be accomplished under § 363(b)."

(2) Whether the Sale "impermissibly subordinates their interests as secured lenders and allows assets on which they have a lien to pass free of liens to other creditors and parties, in violation of § 363(f)."

(3) Whether the Sale was constitutional due to the use of TARP funds by the U.S. Treasury. The Pensioners alleged that they were injured because they lost their priority status as secured creditors.

(4) Whether the Sale was unconstitutional vis-ŕ-vis the present and future tort claimants.

Rule:

(1) Section 363(b) allows for the sale of a debtor's assets outside the ordinary course of business. However, a conflict has been identified between § 363(b) and otherwise applicable requirements of Chapter 11, "which afford debt and equity holders the opportunity to vote on a proposed plan of reorganization after receiving meaningful information." To balance these concerns, the courts consider the following non-exclusive list of factors: "Šproportionate value of the asset to the estate as a whole, the amount of elapsed time since the filing, the likelihood that a plan of reorganization will be proposed and confirmed in the near future, the effect of the proposed disposition on future plans of reorganization, the proceeds to be obtained from the disposition vis-a-vis any appraisals of the property, which of the alternatives of use, sale or lease the proposal envisions and, most importantly perhaps, whether the asset is increasing or decreasing in value." This multi-factor test "remains the proper, most comprehensive framework for judging the validity of § 363(b) transactions."

(2) Assets sold pursuant to "§ 363(b) may be sold 'free and clear of any interest' in the assets under § 363(f) when, inter alia, the entity holding the interest consents to the sale."

 

 

 

©2010 Leif M. Clark