Class 23 Bankruptcy, Spring, 2009 Chrysler Sale Order Randal C. Picker Leffmann Professor of Commercial Law The Law School The University of Chicago 773.702.0864/r-picker@uchicago.edu.

Class 23Bankruptcy, Spring, 2009

Chrysler Sale OrderRandal C. PickerLeffmann Professor of Commercial Law

The Law School

The University of Chicago

Use, sale, or lease of property (b)(1) The trustee, after notice and a

hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate … .

363 (cont.)

Use, sale, or lease of property (f) The trustee may sell property under

subsection (b) or (c) of this section free and clear of any interest in such property of an entity other than the estate, only if -

(1) applicable nonbankruptcy law permits sale of such property free and clear of such interest;

(2) such entity consents;

363 (cont.)

(3) such interest is a lien and the price at which such property is to be sold is greater than the aggregate value of all liens on such property;

(4) such interest is in bona fide dispute; or (5) such entity could be compelled, in a legal

or equitable proceeding, to accept a money satisfaction of such interest.

Assumption

Meaning Estate has choice about whether to perform

debtor’s prepetition contract Assumption means estate accepts

obligation to perform under contract

Mechanics

To assume a contract (365(b)) Trustee must cure—fix—most prepetition

defaults; Compensate for actual pecuniary losses

from the default; and Provide adequate assurance of future

performance

365: Rejection

Executory contracts and unexpired leases (cont.) (g) Except as provided in subsections (h)(2) and (i)

(2) of this section, the rejection of an executory contract or unexpired lease of the debtor constitutes a breach of such contract or lease -

(1) if such contract or lease has not been assumed under this section or under a plan confirmed under chapter 9, 11, 12, or 13 of this title, immediately before the date of the filing of the petition; or

Chrysler Sale Order

19(e): UAW Contract Assumption

“(e) UAW and GMAC Agreements. Contingent upon the approval of the sale of the Purchased Assets to the Purchaser and concurrently with the consummation of the sale of the Purchased Assets (without prejudice to the conditions thereto set forth in the Purchase Agreement), (i) each of the UAW CBA Assignment and the GMAC MAFA Documents (as such term is defined in the Bidding Procedures attached hereto as Exhibit A) shall be deemed to be Confirmed Agreements as to which no Assignment Notice or Confirmation Notice shall be sent,”

19(e): UAW Contract Assumption

“(ii) the Debtors shall assign to Purchaser, and Purchaser shall be deemed to have assumed, each such agreement as of the Closing Date, and each non-Debtor party to each such agreement shall be deemed to have consented to such assumption and assignment and (iii) the Court order approving such sale shall reflect such assumption and assignment.”

19(f): Dealers

“(f) Direct Dealer Agreements. Certain executory dealer agreements will be identified as Designated Agreements to be assumed and assigned. Although most U.S. dealers have entered into standard uniform dealership agreements in the form of the Chrysler Corporation Sales and Service Agreement (the “Sales and Service Agreement"), some dealers are party to older agreements in the form of the Chrysler Direct Dealer Agreement (each, a “Direct Dealer Agreement”),”

19(f): Dealers

“If a Direct Dealer Agreement is identified as a Designated Agreement pursuant to the procedures above, then such Direct Dealer Agreement will only be assumed and assigned to the Purchaser if the counterparty to the Direct Dealer Agreement first agrees to modify such Direct Dealer Agreement and restate it in the form of the Sales and Service Agreement (each such modified Direct Dealer Agreement and Sales and Service Agreement, a “Dealer Agreement”).”

19(f): Dealers

“If the counterparty and the Debtors do not so modify and restate such Direct Dealer Agreement in the form of the Sales and Service Agreement, then notwithstanding any other provisions of these Contract Procedures, such Direct Dealer Agreement will not be assumed and assigned pursuant to these Contract Procedures.”

Screen Capture Slide

Understanding the Sale Order: Starting Points

Hypo 1

Cash $120 U1: $100U2: $100U3: $100

Debtor

How should we divide the assets?

USO: Sale Instead

Hypo 2

Asset $120 U1: $100U2: $100U3: $100

Debtor

Does anything change if we have an asset instead of cash and the asset is sold to a third party first?

USO: Sale w/Assumption

Hypo 3

Asset $120 U1: $100U2: $100U3: $100

Debtor

Suppose that we require the buyer to assume U3’s debt: what happens?

USO: Executory Contract

Hypo 4

Cash $120 U1: $100U2: $100U3: $100

Debtor

D has Exec K: Will need to spend $40 to create $70: what happens?

Exec K

USO: Executory Contract

Hypo 5

Cash $120 U1: $100U2: $100U3: $100

Debtor

D has Exec K: Will need to spend $70 to create $40: what happens?

Exec K

USO: Absolute Priority?

Hypo 6

Asset $120 Senior: $200U1: $100U2: $100U3: $100

Debtor

Senior wants to claim asset and assume debt of U3: what happens?

USO: Voluntary Assumption By Buyer

Hypo 5

Asset $120 U1: $100U2: $100U3: $100

Debtor

Buyer pays $120 and voluntarily assumes U3 debt: what happens?

Chrysler Itself

Which of these match the Chrysler Sale Order?

Want to Read More?

Bankruptcy Litigation Blog http://www.bankruptcylitigationblog.com/arc

hives/bankruptcy-in-the-news-chrysler-files-bankruptcy-part-i-assessing-the-financial-carnage.html

Credit Slips http://www.creditslips.org/creditslips/2009/0

5/chrysler-363-sales-again.html

Wall Street Journal http://online.wsj.com/article/SB1242173568

36613091.html

Class 23 Bankruptcy, Spring, 2009 Chrysler Sale Order Randal C. Picker Leffmann Professor of Commercial Law The Law School The University of Chicago 773.702.0864/r-picker@uchicago.edu.

Documents

Always Events Evaluation - Picker€¦ · Always Events®.....

Class 19 Copyright, Winter, 2010 Music Randal C. Picker...

Class 12 Copyright, Spring, 2008 Performance and Display...

Class 20 Bankruptcy, Spring, 2009 Interest Rates Randal C......

Class 14 Copyright, Spring, 2008 Fair Use: Political Speech....

Class 21 Copyright, Winter, 2010 Online Distribution Randal....

Class 15 Bankruptcy, Spring, 2009 Administrative Expenses...

Class 7 Bankruptcy, Spring, 2009 Executory Contracts Randal....

Class 24 Bankruptcy, Spring, 2009 Review Randal C. Picker...

Class 10 Copyright, Winter, 2010 Duration Randal C. Picker.....

Digital Sales edit · Boom & Platform Hire Boom and...

Class 2 Bankruptcy, Spring, 2009 The Automatic Stay Randal.....

Class 23 Copyright, Spring, 2008 Google Book Search and...

Antitrust Picker

Class 15 Copyright, Winter, 2010 Fair Use: Transaction Costs...

Class 16 Copyright, Winter, 2010 Third-Party Liability...