Supreme Court Halts Chrysler Bankruptcy Sales

With the advent of the bankruptcy filings of Chrysler and GM, the U.S. -- and the world -- see an end to an automobile era. Chrysler meant to sell part of itself to Italian car maker Fiat, and the remaining equity in Chrysler would be held by the U.S. government, Canadian government and the United Auto Workers. Secured bond holders would be compensated about 29 cents on the dollar.

Pension fund controllers saw this development as unacceptable, and filed an appeal with the U.S. Supreme Court to halt the sales. AFP reports on the arguments used by the funds:

They argued that the sale is unconstitutional because it puts the rights of junior creditors ahead of the rights of senior lenders.

The three state pension and construction funds also said the US Treasury Department had overstepped the authority it was granted by Congress under the Troubled Asset Relief Program (TARP), a 700-billion-dollar bailout intended for the financial industry, by financing Chrysler's restructuring.

In response, Supreme Court Justice Ruth Bader Ginsburg singed an order to halt the sale until the case could be reviewed. This is a first in U.S. corporate law. It also brings up the question of whether of not bankruptcy proceedings by GM will be halted as well.