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Chrysler's Sale Order & Filene's Basement

posted by Stephen Lubben

At pages 20-21 of their application for a stay of the bankruptcy court and 2d Circuit's rulings, the appellants state that the Supreme Court will want to consider their appeal because:

This matter also raises an important issue of first impression: whether, and to what extent, section 363 of the Bankruptcy Code may be construed to permit a debtor, even under exigent circumstances, to deal with substantially all of its assets and liabilities without complying with the Congressionally-mandated procedural and substantive protections specified in sections 1122-1129 of the Bankruptcy Code for such transactions.

As I noted yesterday, the appellants have become increasingly open about the broad implications of their challenge to the Chrysler sale. And for this I'm glad, as I have also indicated my impatience with those who pretend that the use of a 363 to shorten a chapter 11 case is some sort of novelty.

L-Filines-L But consider the implications of this appeal for a truly ordinary chapter 11 case, like that of Filene's Basement. Last week Filene's Basement sold most of its assets to a bidder backed by Men's Warehouse, after entering chapter 11 in May.

The timeline is essentially the same as in Chrysler, and the winning bidder intends to keep most of the stores operating -- which leads to the very same issues of preferring some creditors (those needed for ongoing operations) while others are "left behind" in old Filene's Basement.

If the Supreme Court were to adopt strict rules against 363 sales, many, many large chapter 11 cases would become chapter 7 cases. The entire chapter 11 bar has a big stake in the outcome of this appeal.


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The Lionel case sets a reasonable standard for conducting a 363(b) sale. There has to be a "good business reason."

The changes in the bankruptcy laws are such that, in the case of a retailer, there either has to be a quick sale or a liquidation (see the discussion from the Congressional hearing: Circuit City Unplugged: Why Did Chapter 11 Fail To Save 34,000 Jobs?" at http://judiciary.house.gov/hearings/hear_090311_1.html).

The Indiana pensioners do not appear to have made a case against Chrysler's contention that they are a "wasting asset" in bankruptcy. I don't believe that argument and the sales figures for May don't support that argument. Unfortunately, I don't believe that the pensioners can challenge Chrysler's contention in the Supreme Court since they didn't make such a challenge previously.

The Pensioner's case has kinda fallen apart since Judge Gonzalez dismissed it a few days ago. The TARP argument is weak; the Supremes would probably like to hear/rule on a TARP case but would like one where the Constitutional issue is more defined. I agree that the Pensioners have been dealt with somewhat arbitrarily, but they received their bowl of thin gruel, nothing is perfect and the entire issue is irrelevant, anyway.

Unless the Supreme Court can gin up some customers for these businesses and do so pronto (Chrysler/Filene's) both will wind up liquidated anyway.

I look at the taxpayers spending billions of dollars for what> The springtime of Chrysler's winter.

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