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Fired Chrysler Dealers Want Bankruptcy Court to Slow Down on Asset Sale

Dealers facing termination in June are making a last minute bid to head off the Fiat sale.

by on May.20, 2009

Golling Chrysler Jeep Dodge in Bloomfield Hills, Michigan

"The relief Chrysler seeks is unprecedented and improper," claims a dealer group.

The newly organized “Committee of Chrysler Affected Dealers” has filed an objection to Chrysler’s proposed asset sale to Fiat that is key to Chrysler emerging from bankruptcy. Lawyers for the group are asking the U.S. Bankruptcy Court in Manhattan to delay hearings that would approve the asset sale and rejection of the dealer franchise agreements. The hearings are now set for May 27 and are key to Chrysler’s early exit from bankruptcy.

Jim Press, Chrysler president and vice chairman, said last week that he was confident Chrysler’s decision to terminate dealers will withstand legal challenges.

The dealer’s lawyers, however, insist the termination is improper.

“Chrysler’s proposed asset sale and request for immediate termination of dealer franchises will destroy several hundred independent businesses, ruin the livelihoods of their owners, cause the loss of thousands of jobs and precipitate inevitable personal and business bankruptcies flowing from the closing of the affected dealers,” said Stephen D. Lerner, head of the bankruptcy and restructuring practice at Squire, Sanders & Dempsey. Lerner leads the team representing the dealer committee, which represents the collective interests of nearly 300 dealers in 45 states.   

Lerner added that the number of dealers joining the committee’s efforts is growing daily. Last week, Chrysler filed documents with the bankruptcy court in New York, asking for the authority to cancel the franchise agreements for 789 dealers across the U.S.

“The relief Chrysler seeks is unprecedented and improper,” Lerner said. “We believe Chrysler’s efforts through the sale and rejection motions violate due process, the U.S. Bankruptcy Code, other federal statutes and the laws of all 50 states that are specifically designed to protect the interests of dealers and prevent the immeasurable harm that Chrysler is inflicting on these dealers.”

“The Bankruptcy Court will be required to address several matters of first impression and Chrysler has by design given the affected dealers only three business days to respond. The emotional and financial catastrophe that would be wrought by the relief requested in these motions need not happen and should not happen, and certainly not with only three business days’ notice,” Lerner said.

Consequently, the dealer committee has filed a broad objection to Chrysler’s motion seeking authority to sell nearly all its assets to the Fiat/UAW controlled “New Chrysler.” The committee also requested a continuance, asking the court to delay the hearing dates and deadlines related to the proposed sale and rejection motion so the committee has a full and fair opportunity to take discovery and present its defense, Lerner said.

Lerner said that under well-settled principles of bankruptcy law and fundamental notions of due process, Chrysler’s restructuring, as proposed, cannot lawfully happen.

The Committee requests the court require Chrysler to subject its restructuring proposal to the transparency, fairness and equal treatment of similarly situated creditors mandated by the disclosure and plan confirmation provisions of the Bankruptcy Code, and to give the affected dealers the notice and procedural protections that due process and the Bankruptcy Rules command.

“Chrysler’s restructuring transaction is an improper and impermissible sub rosa plan that seeks to use the thinly veiled guise of an asset sale to subvert the normal distribution scheme and creditors’ procedural rights as mandated by Chapter 11 in direct contravention of the basic goal of Chapter 11 reorganization,” Lerner said.

Bondholders, however, have already dropped their objections and salaried retirees also have withdrawn their objections to the deal proposed for getting out of the bankruptcy court by mid-summer.

The deal basically divides Chrysler into a new company aligned with Fiat backed by the auto task force and an old company that will stay behind in bankruptcy for years if necessary as the company’s remaining assets are distributed to creditors.

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