Some Chrysler creditors say bankruptcy plan is 'illegal'

5/8/2009

NEW YORK - Plans for a quick sale of Chrysler LLC to a new company majority-owned by a union-aligned trust is "patently illegal" and will be fought in bankruptcy court, one of the holders of the automaker's secured debt said yesterday.

"We don't succumb to pressure and don't agree to unfair and illegal payment schemes," said George J. Schultze, the managing member of Schultze Asset Management.

Three funds associated with the asset manager hold the automaker's secured debt and are part of the nine-member Chrysler lenders group that have not received government aid and are fighting the restructuring proposal.

Four large banks that hold most of Chrysler's $6.9 billion secured debt have agreed to accept about 29 cents on the dollar as part of a government-brokered reorganization plan. Mr. Schultze said the banks only agreed to the plan because they had accepted billions of dollars in government capital.

The restructuring centers on selling streamlined operations of Chrysler to a new company, which will be 55 percent owned by a union-aligned health-care trust. Italian automaker Fiat SpA also will have a stake in the new company, along with the U.S. Treasury and Canadian government.

The trust is an unsecured creditor and by law has lower-priority claims on the company's assets than secured creditors, although under the reorganization plan it will receive more than what has been offered to secured creditors.

"I'm not clear the sale will be completed because it's patently illegal," said Mr. Schultze, who is a bankruptcy attorney.

Meanwhile, Jones Day partner Corinne Ball, who is charging bankrupt Chrysler $900 an hour for her counsel, asked a judge to make sure her law firm gets paid before others.

As Chrysler's lead law firm, Jones Day's fees and expenses could total $114.7 million, out of $372.4 million in court-approved payments to all lawyers, bankers, and accountants in the Chapter 11 proceedings, estimated bankruptcy law professor Lynn LoPucki at the University of California, Los Angeles.

Jones Day has prepared a draft order for the signature of Judge Arthur Gonzalez asking that its fees and expenses be granted "super-priority status" along with some other Chrysler advisers, according to a filing on April 30 in U.S. Bankruptcy Court in Manhattan.

"I have never seen a request for superpriority under Section 364 for a professional," said bankruptcy law professor Stephen Lubben at Seton Hall University's law school in Newark.

Chrysler paid Washington-based Jones Day $18.9 million in retainers from November to May, partly to try to keep itself out of bankruptcy.