The Corner

Skeel: Auto Bankruptcies Have Set a Terrible Precedent

Fantastic podcast (MP3) featuring David Skeel, a corporate law professor at the University of Pennsylvania Law School. Skeel’s take on the administration’s handling of the auto bankruptcies is unsparing:

Essentially what this sale is, is a reorganization plan, and the basic rule in the case law on sales of assets in bankruptcy is you can only do a pure sale. You can’t do a stealth reorganization plan. You can’t short-circuit the bankruptcy process through a sale. And if there ever was a stealth reorganization plan that really is deciding what everyone gets, this is it. […]

For me, one of the big issues with the approval of the sale of Chrysler is whether other debtors are going to be able to do the same thing, and whether this is going to create a risk of really manipulative transactions, and I think it may. I think the next bankruptcies down the pike might try to use some similar maneuvers, which have the effect of short-circuiting the bankruptcy process. […]

I think the danger is if other corporations try to take a cue from what the government’s doing with Chrysler and GM is: ABC Corp. files for bankruptcy. Insiders of the company decide they want to sell the company to themselves on the cheap. They set up the new entity called New ABC Company. They decide which creditors they like, and they allow those creditors to participate in the new entity, and they do a quick sale in bankruptcy.

Also, gotta love Indiana’s Richard Mourdock (PDF): “‘Hoosier retirees and taxpayers are being deprived of millions of dollars in their funds while a foreign corporation [Fiat] receives a windfall at no cost, this is not equitable,’ stated [Indiana state] Treasurer Mourdock.” He also called the administration’s actions “unprecedented and illegal.”

Hoosier retirees and taxpayers . . . doesn’t exactly square with Obama administration’s depiction of its opponents as a bunch of Wall Street vultures.

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