Chrysler’s old assets in bankruptcy can be liquidated, court rules

Chrysler LLC, the 85-year-old carmaker still partially in bankruptcy as Old Carco LLC, won approval to liquidate under a
plan that may repay the U.S. almost nothing for its bailout and lets unsecured creditors keep any proceeds from a pending
lawsuit against Daimler AG.

U.S. Bankruptcy Judge Arthur Gonzalez in Manhattan on Tuesday approved Old Carco’s Chapter 11 liquidation, which resolves
all remaining objections in the case that began on April 30, 2009. The day it filed, Chrysler agreed that Fiat SpA would pay
$2 billion for a stake in the company while Chrysler kept the remnants, including $27 billion of debt, in bankruptcy. A federal
appeals court in Manhattan upheld the sale.

“The relevant confirmation standards have been satisfied, therefore the court confirms the plan,” Gonzalez said.

About 98 percent of creditors had voted in favor of the plan, and 19 outstanding objections were resolved or overruled in
a hearing Tuesday that lasted almost four hours. The company’s wind-down plan will become effective April 30.

“In 10 days it will be the anniversary of the filing,” Jeffrey Ellman, a Chrysler attorney, told Gonzalez, saying
it was difficult to reach consensus on a wind-down plan for such a large company. He also spoke of the “extraordinary
circumstances in which the bankruptcy was filed, for the company, the economy, and the country.”

“Extensive amounts of time have been spent to develop funding for the liquidation plan,” he added.

Ellman had said at a Jan. 21 hearing that a key issue was whether the company would have enough money to liquidate its remaining
assets, given the U.S. had allotted only $260 million for wind-down costs.

The plan approved today was updated to include a $15 million “environmental reserve” to cover cleanup costs for
hazardous waste at properties that Chrysler may not be able to sell, Ellman told Gonzalez. He said that of 21 properties that
remained in bankruptcy, 10 had been sold, and six are in contract to be sold. The $15 million came out of the $260 million
that the U.S. had already set aside, he said.

Objections resolved during the hearing included one from the Wisconsin Department of Natural Resources, which was given permission
to sue a trust, called the “environmental reserve,” if Chrysler doesn’t comply with environmental orders
at a site of its old facility in Kenosha, Wisconsin.

Michigan’s Natural Resources Department, which had objected based on the lack of funds to clean up potentially hazardous
materials at one old manufacturing facility, at 6700 Lynch Road in Detroit, withdrew its objection. Under an agreement, Chrysler
will create a trust funded with $500,000 for the property, according to court documents.

Under an outline already approved by Gonzalez Jan. 21, the remainder of the company will wind down, giving the U.S. no predicted
recovery on its $5 billion loan under the Troubled Asset Relief Program. The U.S. and Canadian governments may receive a small
recovery from liquidated assets such as the sale of Chrysler’s employee cars.

A $4 billion loan prior to the bankruptcy was increased to $5 billion, and the U.S. can make a credit bid on any assets that
are to be sold, according to the wind-down plan. Creditors with “other secured claims” are estimated to get all
of the $20.6 million they are owed. The recovery for unsecured claims is “undetermined.”

U.S. taxpayers are likely to lose $30.4 billion of their total $81.1 billion investment in Chrysler, General Motors and auto-supply
companies, according to a December report from the Government Accountability Office. At the time, taxpayers’ net investment
in Chrysler was $14.3 billion, according to the GAO.

Investors who had challenged the bankruptcy sale, including the Indiana State Police Pension Trust, had argued that Treasury
Secretary Timothy Geithner violated the Constitution by using TARP money to finance the sale, and had their arguments overruled
in the appeals court.

Recovery for unsecured creditors will come from any proceeds of litigation with Daimler. According to court documents, the
suit on behalf of Old Carco names individual defendants for breach of fiduciary duty, and Daimler for aiding and abetting
a breach of fiduciary duty.

Chrysler’s creditors sued Daimler in August, seeking unspecified “billions” that Daimler allegedly stripped
from the automaker in 2007, just before selling it to Cerberus Capital Management LP. Daimler knew in 2006 that Chrysler was
a failure, burdened with debt and declining sales, creditors alleged. They seek a jury trial to determine damages.

Chrysler Group LLC, a new company that bought some assets of Chrysler LLC, was created on June 10 and is 20 percent-owned
by Fiat.