(CN) – A federal bankruptcy judge in Manhattan on Sunday approved a government-supported plan to sell Chrysler to Fiat. That move came after U.S. District Judge Thomas Griesa refused Indiana pension funds’ request to move Chrysler’s bankruptcy case to district court, removing a potential obstacle facing the carmaker’s sale to Fiat.
The funds argued that review was needed because of the government’s unprecedented use of federal bailout money for bankruptcy financing. They claim the government did not have the authority to provide money to Chrysler for its proposed sale.
On Sunday night, U.S. Bankruptcy Court Judge Arthur Gonzales approved the government-supported plan to sell Chrysler to Fiat. The Indiana pension funds have 10 days to appeal.
Judge Thomas Griesa noted the short bankruptcy process is the result of Chrysler’s proposal to sell virtually all of its assets to “New Chrysler,” owned by the U.S. and Canadian governments, the Italian automaker Fiat and Chrysler’s union. The company faces a June 15 deadline to close the deal.
The three funds – the Indiana State Teachers retirement Fund, the Indiana Police Pension Trust, and a construction fund – hold around $40 million in the company’s senior secured loans. They claims they should be among the first in line for repayment in a bankruptcy proceeding.
Chrysler, which filed for bankruptcy on April 30, was able to reach an agreement with a majority of its bond holders, who would receive $2 billion in a deal worth 29 cents on the dollar.
An attorney for the funds said they paid 43 cents on the dollar in 2008 for their portion of the company’s $7 billion in senior secured debt.
Plaintiffs say the federal government dictated the terms of the sale without a legal basis.
The government contends its role was legal under the Emergency Economic Stabilization Act, which established the Troubled Asset Relief Program.
Judge Griesa said both of those laws need to be interpreted, as does whether the proposed sale gives proper recognition to secured creditors. He said these are “surely issues to be decided by the bankruptcy court.”
The funds’ request to prevent Chrysler’s scheduled sale hearing in bankruptcy court on Wednesday was also denied.
Griesa said it would be “disruptive” to remove the issue from bankruptcy court at this late stage and from a “judge who has the background and is ready to complete his work.”
Chrysler released a statement saying that it was pleased with the judge’s decision and looked forward to Wednesday’s hearing.
Griesa said he would explain his ruling in a formal opinion after a decision is made by the bankruptcy judge. He added that the objecting party should have the chance to appeal the decision in district court.