Class 23 Bankruptcy, Spring, 2009 Chrysler Sale Order 11/14/2018 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 Reserved.

Copyright © 2005-09 Randal C. Picker 11/14/2018 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 … . November 14, 2018 Copyright © 2005-09 Randal C. Picker

Copyright © 2005-09 Randal C. Picker 11/14/2018 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; November 14, 2018 Copyright © 2005-09 Randal C. Picker

Copyright © 2005-09 Randal C. Picker 11/14/2018 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. November 14, 2018 Copyright © 2005-09 Randal C. Picker

Copyright © 2005-09 Randal C. Picker 11/14/2018 Assumption Meaning Estate has choice about whether to perform debtor’s prepetition contract Assumption means estate accepts obligation to perform under contract November 14, 2018 Copyright © 2005-09 Randal C. Picker

Copyright © 2005-09 Randal C. Picker 11/14/2018 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 November 14, 2018 Copyright © 2005-09 Randal C. Picker

Copyright © 2005-09 Randal C. Picker 11/14/2018 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 - (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 November 14, 2018 Copyright © 2005-09 Randal C. Picker

Copyright © 2005 Randal C. Picker 11/14/2018 Chrysler Sale Order November 14, 2018 Copyright © 2005 Randal C. Picker

19(e): UAW Contract Assumption 11/14/2018 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,” November 14, 2018 Copyright © 2005 Randal C. Picker

19(e): UAW Contract Assumption 11/14/2018 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.” November 14, 2018 Copyright © 2005 Randal C. Picker

Copyright © 2005 Randal C. Picker 11/14/2018 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”),” November 14, 2018 Copyright © 2005 Randal C. Picker

Copyright © 2005 Randal C. Picker 11/14/2018 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”).” November 14, 2018 Copyright © 2005 Randal C. Picker

Copyright © 2005 Randal C. Picker 11/14/2018 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.” November 14, 2018 Copyright © 2005 Randal C. Picker

Copyright © 2005 Randal C. Picker 11/14/2018 Screen Capture Slide November 14, 2018 Copyright © 2005 Randal C. Picker

Understanding the Sale Order: Starting Points 11/14/2018 Understanding the Sale Order: Starting Points Hypo 1 Debtor Cash $120 U1: $100 U2: $100 U3: $100 How should we divide the assets? November 14, 2018 Copyright © 2005-09 Randal C. Picker

Copyright © 2005-09 Randal C. Picker 11/14/2018 USO: Sale Instead Hypo 2 Debtor Asset $120 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? November 14, 2018 Copyright © 2005-09 Randal C. Picker

USO: Sale w/Assumption 11/14/2018 USO: Sale w/Assumption Hypo 3 Debtor Asset $120 U1: $100 U2: $100 U3: $100 Suppose that we require the buyer to assume U3’s debt: what happens? November 14, 2018 Copyright © 2005-09 Randal C. Picker

USO: Executory Contract 11/14/2018 USO: Executory Contract Hypo 4 Debtor Cash $120 U1: $100 U2: $100 U3: $100 D has Exec K: Will need to spend $40 to create $70: what happens? Exec K November 14, 2018 Copyright © 2005-09 Randal C. Picker

USO: Executory Contract 11/14/2018 USO: Executory Contract Hypo 5 Debtor Cash $120 U1: $100 U2: $100 U3: $100 D has Exec K: Will need to spend $70 to create $40: what happens? Exec K November 14, 2018 Copyright © 2005-09 Randal C. Picker

USO: Absolute Priority? 11/14/2018 USO: Absolute Priority? Hypo 6 Debtor Asset $120 Senior: $200 U1: $100 U2: $100 U3: $100 Senior wants to claim asset and assume debt of U3: what happens? November 14, 2018 Copyright © 2005-09 Randal C. Picker

USO: Voluntary Assumption By Buyer 11/14/2018 USO: Voluntary Assumption By Buyer Hypo 5 Debtor Asset $120 U1: $100 U2: $100 U3: $100 Buyer pays $120 and voluntarily assumes U3 debt: what happens? November 14, 2018 Copyright © 2005-09 Randal C. Picker

Copyright © 2005-09 Randal C. Picker 11/14/2018 Chrysler Itself Which of these match the Chrysler Sale Order? November 14, 2018 Copyright © 2005-09 Randal C. Picker

Copyright © 2005-09 Randal C. Picker 11/14/2018 Want to Read More? Bankruptcy Litigation Blog http://www.bankruptcylitigationblog.com/archives/bankruptcy-in-the-news-chrysler-files-bankruptcy-part-i-assessing-the-financial-carnage.html Credit Slips http://www.creditslips.org/creditslips/2009/05/chrysler-363-sales-again.html November 14, 2018 Copyright © 2005-09 Randal C. Picker

Copyright © 2005-09 Randal C. Picker 11/14/2018 More? Wall Street Journal http://online.wsj.com/article/SB124217356836613091.html November 14, 2018 Copyright © 2005-09 Randal C. Picker