Page last updated at 07:00 GMT, Wednesday, 6 May 2009 08:00 UK

Judge paves way for Chrysler deal

Chrysler sign
Chrysler has filed for bankruptcy in New York

The judge overseeing the bankruptcy of Chrysler has taken a significant step toward allowing the sale of the ailing US automaker to Italian rival Fiat.

Judge Arthur Gonzales rejected arguments from a group of Chrysler lenders, who wanted the deal blocked.

He said that the plan was a "fair and ordinary" process and stressed the "urgent need" for a sale.

The decision is seen as a victory both for Chrysler and for the US government, which has backed the plan.

Chrysler has asked for permission for a quick sale of most of its assets to a new company held by Italy's Fiat , a United Auto Workers union healthcare trust and the US and Canadian governments.

Objections

A group of 20 lenders, including hedge funds, had said the plan would go against normal bankruptcy principles.

BANKRUPTCY PROTECTION
US bankruptcy protection is called Chapter 11
It gives US businesses time to rearrange their finances while continuing to trade, protected from their creditors
After filing, it is up to the judge to decide who gets paid and how much, balancing the interests of all parties
The judge holds hearings where all the parties give their views
His ruling can be appealed

The proposed procedures are not legitimate and do not maximise the sale price of the assets, the group's lawyers said.

The group claimed Chrysler's proposed plan "inverts" the usual priority scheme, whereby senior secured creditors are paid in full first, followed by junior lenders, administrative claims, unsecured lenders and equity holders.

Creditors objected to the way the restructuring benefits the United Auto Workers union, which is an unsecured creditor, for the $10.6bn Chrysler owes to its retiree healthcare fund.

In addition, they have requested anonymity because they feel they are unfairly becoming the focus for a political backlash.

In a court filing the lender group said some of their members have received death threats and have thus requested anonymity.

However, the judge said the identities of the Chrysler creditors should be disclosed by Wednesday morning.

When President Barack Obama unveiled the proposed Chrysler bankruptcy last week he called the lender group - who hold more than $300m of secured Chrysler debt - "speculators."



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