Class 23
Bankruptcy, Spring, 2009
Chrysler Sale Order
Randal C. Picker
Leffmann Professor of Commercial Law
The Law School
The University of Chicago
773.702.0864/r-picker@uchicago.edu
Copyright © 2005-09 Randal C. Picker. All Rights
363

Use, sale, or lease of property
(b)(1)
The trustee, after notice and a
hearing, may use, sell, or lease, other than
in the ordinary course of business, property
of the estate … .
March 19, 2016
Copyright © 2005-09 Randal C. Picker
2
363 (cont.)

Use, sale, or lease of property
(f)
The trustee may sell property under
subsection (b) or (c) of this section free and
clear of any interest in such property of an
entity other than the estate, only if (1) applicable nonbankruptcy law permits
sale of such property free and clear of such
interest;
 (2) such entity consents;

March 19, 2016
Copyright © 2005-09 Randal C. Picker
3
363 (cont.)
(3) such interest is a lien and the price at
which such property is to be sold is greater
than the aggregate value of all liens on such
property;
 (4) such interest is in bona fide dispute; or
 (5) such entity could be compelled, in a legal
or equitable proceeding, to accept a money
satisfaction of such interest.

March 19, 2016
Copyright © 2005-09 Randal C. Picker
4
Assumption

Meaning
Estate
has choice about whether to perform
debtor’s prepetition contract
Assumption means estate accepts
obligation to perform under contract
March 19, 2016
Copyright © 2005-09 Randal C. Picker
5
Mechanics

To assume a contract (365(b))
Trustee
must cure—fix—most prepetition
defaults;
Compensate for actual pecuniary losses
from the default; and
Provide adequate assurance of future
performance
March 19, 2016
Copyright © 2005-09 Randal C. Picker
6
365: Rejection

Executory contracts and unexpired leases (cont.)
 (g)
Except as provided in subsections (h)(2) and
(i)(2) of this section, the rejection of an executory
contract or unexpired lease of the debtor
constitutes a breach of such contract or lease 
March 19, 2016
(1) if such contract or lease has not been assumed
under this section or under a plan confirmed under
chapter 9, 11, 12, or 13 of this title, immediately
before the date of the filing of the petition; or
Copyright © 2005-09 Randal C. Picker
7
Chrysler Sale Order
March 19, 2016
Copyright © 2005 Randal C. Picker
8
19(e): UAW Contract
Assumption
“(e) UAW and GMAC Agreements. Contingent
upon the approval of the sale of the Purchased
Assets to the Purchaser and concurrently with the
consummation of the sale of the Purchased Assets
(without prejudice to the conditions thereto set
forth in the Purchase Agreement), (i) each of the
UAW CBA Assignment and the GMAC MAFA
Documents (as such term is defined in the Bidding
Procedures attached hereto as Exhibit A) shall be
deemed to be Confirmed Agreements as to which
no Assignment Notice or Confirmation Notice shall
be sent,”
March 19, 2016
Copyright © 2005 Randal C. Picker
9
19(e): UAW Contract
Assumption
“(ii) the Debtors shall assign to Purchaser, and
Purchaser shall be deemed to have assumed, each
such agreement as of the Closing Date, and each
non-Debtor party to each such agreement shall be
deemed to have consented to such assumption and
assignment and (iii) the Court order approving
such sale shall reflect such assumption and
assignment.”
March 19, 2016
Copyright © 2005 Randal C. Picker
10
19(f): Dealers
“(f) Direct Dealer Agreements. Certain executory
dealer agreements will be identified as Designated
Agreements to be assumed and assigned. Although
most U.S. dealers have entered into standard
uniform dealership agreements in the form of the
Chrysler Corporation Sales and Service Agreement
(the “Sales and Service Agreement"), some dealers
are party to older agreements in the form of the
Chrysler Direct Dealer Agreement (each, a “Direct
Dealer Agreement”),”
March 19, 2016
Copyright © 2005 Randal C. Picker
11
19(f): Dealers
“If a Direct Dealer Agreement is identified as a
Designated Agreement pursuant to the procedures
above, then such Direct Dealer Agreement will
only be assumed and assigned to the Purchaser if
the counterparty to the Direct Dealer Agreement
first agrees to modify such Direct Dealer
Agreement and restate it in the form of the Sales
and Service Agreement (each such modified Direct
Dealer Agreement and Sales and Service
Agreement, a “Dealer Agreement”).”
March 19, 2016
Copyright © 2005 Randal C. Picker
12
19(f): Dealers
“If the counterparty and the Debtors do not so
modify and restate such Direct Dealer Agreement
in the form of the Sales and Service Agreement,
then notwithstanding any other provisions of these
Contract Procedures, such Direct Dealer
Agreement will not be assumed and assigned
pursuant to these Contract Procedures.”
March 19, 2016
Copyright © 2005 Randal C. Picker
13
Screen Capture Slide
March 19, 2016
Copyright © 2005 Randal C. Picker
14
Understanding the Sale
Order: Starting Points

Hypo 1
Debtor
Cash $120
U1: $100
U2: $100
U3: $100
How should we divide
the assets?
March 19, 2016
Copyright © 2005-09 Randal C. Picker
15
USO: Sale Instead

Hypo 2
Debtor
Asset $120
March 19, 2016
U1: $100
U2: $100
U3: $100
Does anything
change if we have an
asset instead of cash
and the asset is sold
to a third party first?
Copyright © 2005-09 Randal C. Picker
16
USO: Sale w/Assumption

Hypo 3
Debtor
Asset $120
March 19, 2016
U1: $100
U2: $100
U3: $100
Suppose that we
require the buyer to
assume U3’s debt:
what happens?
Copyright © 2005-09 Randal C. Picker
17
USO: Executory Contract

Hypo 4
Debtor
Cash $120
Exec K
March 19, 2016
U1: $100
U2: $100
U3: $100
D has Exec K: Will
need to spend $40 to
create $70: what
happens?
Copyright © 2005-09 Randal C. Picker
18
USO: Executory Contract

Hypo 5
Debtor
Cash $120
Exec K
March 19, 2016
U1: $100
U2: $100
U3: $100
D has Exec K: Will
need to spend $70 to
create $40: what
happens?
Copyright © 2005-09 Randal C. Picker
19
USO: Absolute Priority?

Hypo 6
Debtor
Asset $120
March 19, 2016
Senior:
$200
U1: $100
U2: $100
U3: $100
Senior wants to claim
asset and assume
debt of U3: what
happens?
Copyright © 2005-09 Randal C. Picker
20
USO: Voluntary
Assumption By Buyer

Hypo 5
Debtor
Asset $120
March 19, 2016
U1: $100
U2: $100
U3: $100
Buyer pays $120 and
voluntarily assumes
U3 debt: what
happens?
Copyright © 2005-09 Randal C. Picker
21
Chrysler Itself

Which of these match the Chrysler Sale
Order?
March 19, 2016
Copyright © 2005-09 Randal C. Picker
22
Want to Read More?

Bankruptcy Litigation Blog
http://www.bankruptcylitigationblog.com/arc
hives/bankruptcy-in-the-news-chrysler-filesbankruptcy-part-i-assessing-the-financialcarnage.html

Credit Slips
http://www.creditslips.org/creditslips/2009/0
5/chrysler-363-sales-again.html
March 19, 2016
Copyright © 2005-09 Randal C. Picker
23
More?

Wall Street Journal
http://online.wsj.com/article/SB1242173568
36613091.html
March 19, 2016
Copyright © 2005-09 Randal C. Picker
24