Indiana officials fight bankruptcy sale of automaker Chrysler

Indiana officials are taking their case to the U.S. Supreme Court in hopes to reverse its decision on Chrysler’s bankruptcy, which resulted in huge losses by the company’s stakeholders.

Chrysler filed bankruptcy in April in order to pay off debtors, selling most of the automaker’s assets. In the process, three Indiana pension funds lost their investment in the company.

The Indiana State Police Pension Trust, the Indiana State Teachers’ Retirement Fund and the Major Moves Construction Fund lost an estimated $6 million in value after the bankruptcy sale.

Indiana State Treasurer Richard Mourdock said he thinks the sale unfairly supports unsecured creditors instead of paying off secured creditors like the Indiana funds.

“I feel that the Constitution and the law have been violated by politicians, Republicans and Democrats alike,” Mourdock said. “This case looks to fix the mess created by Chrysler’s sale.”

Chrysler did not return calls for comment by press time.

Mourdock and the Indiana funds want to block the deal that sold the automaker’s assets to the Italian company Fiat. But they must first wait to hear if the Supreme Court will take their case after the Court rejected an earlier appeal in June.

“Had we won the trial in June, there would have been no sale of Chrysler and we would have come out even,” Mourdock said.

If the Supreme Court decides to hear the case, the group could recover some of its lost investment.

Jim Holden, chief deputy treasurer and general counsel for the treasurer’s office, said he thinks this is a very important case, not just for Indiana, but for the country.

“The issue at stake is important either way. This case has the potential to change the fundamental notion of investment,” Holden said. “Whatever the court comes back with will set a serious precedent for future law.”

Holden argues that Chrysler’s creditors used a loophole in order to get more protection during the sale. Section 363 is a provision in the U.S. bankruptcy code that allowed Chrysler to avoid filing for the typical Chapter 11 bankruptcy reorganization.

Thomas Bowers, Kelley School of Business associate professor of business law, said that during bankruptcy the company liquefies its assets in order to reduce or resolve their debts.

“Bankruptcy gives the ability for creditors to get back some of their money,” Bowers said. “The idea behind filing bankruptcy is to survive, but it should be a last ditch effort.”

But by using section 363, Chrysler only had to pay off its unsecured creditors, leaving the Indiana funds with nothing. Holden argues that the ability of companies to avoid paying off its unsecured creditors is a “major misuse of 363” which “rigs the rules of the court.”

The Supreme Court will decide whether to take the case later on this week. It takes four of the nine judges to grant permission, called petition of writ of certiorari, to hear the case. Holden said few cases are taken by the Supreme Court, especially ones rooted in Indiana.

“We’re not exactly a high profile office, and not used to getting front page coverage like this,” Holden said. “It’s a huge deal to be heard in front of the Supreme Court, one we want to take full advantage of.”