Page last updated at 01:42 GMT, Wednesday, 10 June 2009 02:42 UK

Court opens way for Chrysler sale

Chrysler vehicle
The sale now looks set to go ahead

The US Supreme Court has rejected a plea to block the sale of assets of the bankrupt carmaker Chrysler to the Italian firm Fiat.

On Monday, the court granted a request to delay the sale while three Indiana state pension and construction funds pursued an appeal against it.

But it has now ruled that a full appeal against the plan is not justified.

The US government, which strongly backed the sale, issued a statement applauding the decision.

"The Chrysler-Fiat alliance can now go forward, allowing Chrysler to re-emerge as a competitive and viable automaker," the statement said.

The United States government has, I continue to believe, acted egregiously
Richard Mourdock
Indiana treasurer

"We are gratified that not a single court that reviewed this matter, including the US Supreme Court, found any fault whatsoever with the handling of this matter by either Chrysler or the US government."

Fiat can legally walk away from the deal if it is not completed by 15 June.

Chrysler entered bankruptcy protection in April, following a massive slump in sales brought on by the financial crisis.

'Grave consequences'

The sale to the Fiat-led consortium would allow it to emerge from bankruptcy.

Fiat would control 20% of Chrysler, while 68% would be owned by a union trust, and the Canadian and US governments would share 12%.

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

However, the pension funds, which hold about $42m (£26.3m) of Chrysler's $6.9bn in secured loans, are opposed to the sale.

They say it inverts usual bankruptcy practice and unlawfully rewards unsecured creditors, such as the union, ahead of secured lenders.

Indiana's Republican state treasurer, Richard Mourdock, who has campaigned against the sale, said he was disappointed with the court's decision.

"The United States government has, I continue to believe, acted egregiously by taking away the traditional rights held by secured creditors," he said.

Earlier, the Obama administration said that blocking the deal would have "grave consequences".

Solicitor General Elena Kagan said that blocking the sale could force Chrysler into liquidation.

Burden 'not carried'

A federal appeals court in New York had earlier approved Chrysler's sale - but gave opponents until Monday to persuade the Supreme Court to intervene.

Those objecting had to persuade at least four of the nine justices that the issue raised was serious enough to warrant hearing a full appeal.

"The applicants have not carried that burden," the court said in its ruling.

Analysts say the sale is now likely to go ahead within the next few days.

Chrysler had filed for bankruptcy protection on 30 April and had aimed to complete the sale and alliance with Fiat within 60 days.

The Chrysler case could also set a precedent for General Motors, which entered bankruptcy protection on 1 June.



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