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Automotive Bankruptcy and Trucking Companies – The Emerging Pattern

June 2009.  With a month gone by in the Chrysler bankruptcy and a GM bankruptcy possibly in process, trucking companies serving GM and Chrysler need to stay current on how to deal with these restructurings.

After initial uncertainty, the Chrysler proceeding has been well organized and holds the promise of allowing many carriers to avoid losses that normally apply to creditors in a bankruptcy. Given the heavy governmental involvement in both situations, procedures for GM may well follow a similar model.

The Chrysler bankruptcy filing on April 30 began with the Bankruptcy Court issuing many so-called "First Day" orders including an "Essential Supplier" order and a "Lienholder" order. Both orders provided a basis for Chrysler to make payments of amounts owing to carriers as of April 30 if those carriers were found to be qualified Essential Suppliers or qualifying Lienholders. The Court also issued an order confirming that Chrysler was authorized to make payments for services provided after the April 30 bankruptcy filing date.

In mid-May, Chrysler began issuing notices that agreements with certain carriers had been selected to be "assumed" for continuing operations by both Chrysler and the proposed purchaser of the Chrysler assets (presumably, the Fiat group) after the proposed transfer of those assets in mid-June. The notices also indicated that as a part of the assumption of these agreements, the amounts owing to the selected carriers as of the bankruptcy date would be paid to "cure" Chrysler’s breach of its obligations under those agreements.

Each carrier whose contract was selected to be assumed and cured was listed on an annex to the notice along with the specific cure amount. If the carrier disagreed with the amount or the proposed assumption, it was required to file objections with the Bankruptcy Court within ten days.

The assumption notices stated that the cure amount would be paid ten days following the closing date of the proposed asset transfer. Certain carriers, however, also received separate notices from Chrysler proposing additional arrangements. These notices indicated that Chrysler itself would begin paying a portion of the total cure payment to the carrier immediately if the carrier agreed to the arrangements proposed by Chrysler.

Many carriers have been successful in negotiating with Chrysler to correct errors in the cure amounts or to have themselves added to the cure lists. When carriers file objections in the Bankruptcy Court to cure details, Chrysler’s attorneys ask the carriers to work directly with their Chrysler contacts. Some negotiations have been informal, without the filing of objections, although such informal agreements would not be enforceable if challenged at a later point in the bankruptcy proceeding.

If the Chrysler bankruptcy is any indication, the most important factor for carriers in these reorganization proceedings is their relationship with their customer. Chrysler (and presumably GM) is under no obligation to treat any carrier as an Essential Supplier.

The consequence of being left out of the Essential Supplier group probably will be complete non-payment of any amounts owed to the carrier as of the date of bankruptcy. Carriers who are concerned about these issues should be talking with all of their Chrysler and GM contacts to do whatever is necessary to make sure that their names are taken into account in deciding who should be designated as Essential Suppliers.

The Dean & Fulkerson Transportation Law Group is maintaining an archive of the various Bankruptcy Court orders if affected parties need additional information. To be included on our distribution list of more frequent updates on these developments, please call or email any Transportation Group attorney.

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Article Originally Published: June 2009

The information contained in this article is not intended to be legal advice. Readers should not act or rely on this information without consulting an attorney.