On June 1, 2009, Indiana state pension funds appealed to the Second Circuit the May 31 decision of Judge Arthur Gonzalez of the bankruptcy court for the Southern District of New York. The decision was to approve the sale of substantially all of the ailing Chrysler’s assets, free of all liens, to a newly organized entity known as “New Chrysler” for $2 billion in cash. The creditors who had liens on those assets would divide the $2 billion consideration, and New Chrysler would be 55% owned by the United Auto Workers (UAW) union, 20% by Italian automaker Fiat, and 10% by the U.S. and Canadian governments.
Among the questions presented in the appellant’s brief was “[w]hether the bankruptcy court erred in relying on a purported liquidation valuation where the assets are being sold on a going concern basis and therefore, had to be valued on such basis under Section 506(a)(1) of the Bankruptcy Code?” This article discusses that question.