Supreme Court Returns Rights to Secured Creditors
When the judge for Chrysler's bankruptcy case gave the go-ahead for its sale to Fiat, that judge specifically denied an attempt by the secured creditors to be treated better than the unsecured creditors. Indiana's state treasurer, representing three state investment funds representing about 1% of Chrysler's total debt, naturally appealed.
However, the group was promptly told that the quick sale of Chrysler's assets was necessary and would go ahead, short-circuiting decades of bankruptcy precedent and explicit statutory law.
The degree to which the media went along with the idea that this was perfectly legal is testament to the political and economic pressure brought to bear upon the process at the time.
In a summary decision so brief as to slip under the radar of many, the U.S. Supreme Court settled the law about this (at the time) white-hot legal issue with a silent bolt of lightning, vacating the appeals court ruling affirming the original judge's legal reasoning.
A "summary decision" to overturn is taking this position: the original ruling was so dramatically improper that there's no point even bothering to hear arguments as to why it should be upheld. Smack-downs such as these are very rare in American jurisprudence.
Now, the Supreme Court didn't undo the sale of Chrysler; it merely took a stand that there should be no illusion that treating secured creditors - the ones who are supposed to get paid back first, from liquidation if need be - may not be so openly shortchanged in favor of unsecured creditors, such as the UAW and the U.S. government.
While Chrysler is a done deal, those who viewed the precedent established by the Chrysler case as a way to begin a new regime of quick bankruptcies will have to live with disappointment.
Quick asset sales were not invented in July. Precedents existed in the early Great Depression. Congress felt creditors were shortchanged and passed laws against such injustices. That was the law of the land until the fierce urgency of now (well, at the time) caused a group of judges to conveniently forget the law. The Supreme Court has now conveniently remembered.
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