Chrysler's bankruptcy filing, which occurred on April 30, has generated considerable activity already. Baker Hostetler has been monitoring closely the Chrysler activity for our supplier clients. We attended the hearing on the first day filings, which were generally ministerial in nature. The court approved joint administration, maintenance of cash management/business forms, enforcement of automatic stay, payment of wages, and honoring of all warranties. The real fireworks start this week with Chrysler attempting to get approval of $4.6 billion in debtor-in-possession financing from Treasury, of which $1.8 billion would be immediately available on an interim basis. In addition, Chrysler will file the bidding and sale procedures relating to the Fiat purchase. We will update you on the DIP and sale motions as events occur.
Below is a summary of the early filings impacting suppliers.
Motion Establishing Procedures for the Assertion of Section 503(b)(9) Claims Relating to Goods Received by the Debtors Within Twenty Days Before the Petition Date .
- Court will establish a bar date for filing 503(b)(9) claims by a subsequent order of the Court. 503(b)(9) claimants will be required to file proofs of claim using a standardized form.
- 503(b)(9) claimants will be prohibited from filing motions to compel the allowance or payment of administrative expense claims.
- All allowed 503(b)(9) claims will be paid (if at all) under any applicable plan of reorganization confirmed by the bankruptcy court.
- The Court-approved procedures are the sole and exclusive method for creditors to assert and seek payment of 503(b)(9) claims.
- Any pending motion relating to a section 503(b)(9) claim will be stayed pending resolution in accordance with the proposed procedures.
One important note regarding the above: There may not be any recovery for many unsecured creditors in these cases, which may, in turn, mean that 503(b)(9) claims may go unpaid. Some 503(b)(9) claims may be paid, however, under the Essential Supplier Motion described below.
Motion Establishing Procedures for Resolving Reclamation Claims Asserted Against the Debtors and Granting Certain Related Relief.
- Reclamation claims must be sent to Chrysler LLC, c/o Epiq Systems. Claims must satisfy requirements imposed by applicable state and federal law.
- Debtors have 120 days after the petition date to file a reclamation notice listing all reclamation claims and the Debtors' defenses thereto.
- Reclamation claimants then have 20 days to file an objection or their reclamation claims will be allowed (or disallowed) in accordance with the reclamation notice.
- Sellers will be prohibited from attempting to reclaim possession of any goods subject to reclamation claims.
- Sellers will be prohibited from seeking relief from the automatic stay in order to enforce reclamation rights.
- No adversary proceeding can be initiated with respect to any reclamation claims.
One important note regarding the above: Chrysler is likely to use the prior lien defense to nullify all reclamation claims in these cases.
Motion Authorizing Chrysler to Pay the Prepetition Claims of Certain Essential Suppliers and Administrative Claimholders, Continuing the Debtors' Troubled Supplier Program and Granting Certain Related Relief.
- In this Motion, Chrysler seeks authority to pay essential supplier claims, but the supplier must agree to continue the existing business relationship with the Debtors, pending the closing of a sale, and with the Purchaser, after closing. Acceptance of essential supplier payment constitutes affirmation of required trade terms.
- Supplier must continue to extend normalized trade credit to the Debtors, pending the closing of a sale, and to the Purchaser, after closing.
- Supplier must agree that the Debtors' standard terms and conditions govern the commercial relationship with the Debtors, pending the closing of a sale, and with the Purchaser, after closing.
- Supplier must agree to release to the Debtors, as requested, goods and other assets of the Debtors in the supplier's possession and confirm that the supplier has no lien on the production tooling based upon the Debtors' nonpayment of prepetition claims.
- Supplier must agree not to contest the assumption of any purchase order issues by the Debtors on the grounds that the purchase order is not an executory contract or on any other grounds (other than the failure of a Purchaser other than Fiat to provide adequate assurance of future performance).
- Supplier that accepts payment and fails to provide trade terms will be deemed to have received an unauthorized postpetition transfer, and the Debtors may recover the payment or apply the amount against any outstanding administrative claim of the supplier.
- The Debtors will be authorized to continue their Troubled Supplier Program and negotiate and enter into new accommodation agreements with troubled suppliers. Also, the Debtors will be authorized to continue their Supplier Support Program.
- The Debtors will cause the Chrysler Receivables SPV to enter into a forbearance agreement with the U.S. Treasury.
- The Debtors may, in their sole discretion, pay 503(b)(9) claims in the ordinary course of business.
- The Debtors will have the ability to make a provisional payment to a Repudiating Vendor that refuses to perform its postpetition obligations under an executory contract and then seek the entry of an order finding the Repudiating Vendor to have willfully violated sections 362 and 365 of the Bankruptcy Code and require the Repudiating Vendor to return the provisional payment to the Debtors.
- Upon request by the Debtors, banks will be directed to honor checks related to essential supplier claims, twenty-day administrative claims and provisional payments.