Absolute Priority: The Blog for Business Bankruptcy, Insolvency and Restructuring

According to an article in Bloomberg.com, Obama Said to Plan for Chrysler Bankruptcy, Alliance , Chrysler may now file for bankruptcy as early as tomorrow.  If anyone thinks that Chrysler will just do a quick 363 sale to Fiat (or some new entity), they have another thing coming.  While the “major” secured creditors may be willing to roll over (and Big Labor gave some concessions), there is no telling what the “minor” secured creditors (e.g., those who have mold liens, etc.) may do.  Also, let’s see how the unsecured creditors are going to be adversely affected in a Chrylser bankruptcy — I say strap yourself in and get ready for a bumpy ride.  The real question is:  what happens at the end of that ride if Chrysler still has high labor cost, adequate quality and uninventive vehicles?  I think we all know.

There was an interesting article in the New York Times on Saturday, April 26, 2009, at Detroit Would Prefer Any Auto Bankruptcy to Be Handled Locally (April 26, 2009) discussing the possible venues for either a GM or Chrsyler bankruptcy filing.  No doubt Detroit would prefer a GM or Chrysler filing to occur there for political reasons, but the reality is that there are only 2 venues that can efficiently handle such large cases:  Delaware or S.D.N.Y.  The reality is that those two venues are probably about the same, excluding some unfavorable case law in the Third Circuit, and both have extensive experience in automotive cases, a sophisticated bench and bar in automotive bankruptcy cases, and have large courtrooms with state of the art audio-visual systems.  Also, while Detroit is considered the home for automotive, both GM and Chrysler are large multinationals that have substantial business connections in numerous locations in the US and abroad, so DE and NY are certainly as good of a place as any to file for bankruptcy.  I’ll be surprised if either of the automakers files for bankrutpcy in Detroit (FYI:  as of tonight it is looking less likely that Chrysler will file for bankruptcy at all, but GM is a different story with the aweful GM Exchange Offer), and, from my vantage point, the venue of choice for the automakers is either DE or NY.

Congressman Nadler (D, NY) and Cohen (D, TN) introduced the Business Reorganization and Job Preservation Act of 2009 , H.R. 1942, which seeks to amend the Bankruptcy Code by repealing to pre-BAPCPA the following sections: 365, 366, 503(b)(9) (repeals altogether), and 546(c). The purpose of the Act is to increase the changes of retailers to reorganize successfully. For an article discussing changes need to the Bankruptcy Code to increase the likelihood of retailers reorganizing see Suggested Amendments to US Bankruptcy Code.  Certainly, this is one of the most encouraging Acts proposed since BAPCPA from the retailers’ perspective, but the real question is:  will it be adopted?  Unfortunately, probably not, at least not without some strong, unified and consistent lobbying from the retail industry.