Section 363 of the U.S. bankruptcy code allows for Chapter 11 debtors to sell assets before creditors can challenge the general reorganization plan.
In essence, section 363 gives the bankrupt entity, in this case, Chrysler, the right to sell assets to another organization, in this case Fiat, BEFORE creditors can challenge the Chapter 11 reorganization plan. This significantly reduces the collateral against which secured creditors can make claims in bankruptcy.
The summary of the grounds for Laruia’s objection:
1. The Proposed Sale Constitutes an Illegal Sub Rosa Plan that Redistributes Value Among Creditor Classes.
2. The Proposed Sale Fails the Requirement of Section 363(f).
3. The Sale Is Not Proposed In Good Faith.
4. The Taking of Collateral through a Direct or Indirect Use of TARP Authority is Unconstitutional. (This one is Huge as it sets a case law precedent.)
http://zerohedge.blogspot.com/2009/05/chrysler-non-tarp-lenders-come-out-guns.html
I don’t get it. Is there some magic that ensures success after a “Chapter 11” bankruptcy? It seems there is alway talk about the rosy times that will ensue. With UAW owning more than half, why would I think Chrysler is going to be any different (or more succesful) after a reoganization?