Automobile Bankruptcies, Retiree Benefits, and the Futility of Springing Priorities in Chapter 11 Reorganizations

Abstract:     
Both Chrysler and GM used asset sales under section 363 of the Bankruptcy Code as a way to avoid the more cumbersome chapter 11 plan process. The strategic use of section 363 asset sales in reorganization cases is becoming so common that some courts and commentators predict that the asset-sale route to a chapter 11 plan confirmation may soon supplant the traditional chapter 11 plan process. While some have decried section 363 sales as contrary to the voting system and other procedural safeguards inherent in a standard chapter 11 confirmation, this Essay argues that the section 363 asset-sale development is a natural consequence of the Bankruptcy Code being weighed down by a “springing” (or bankruptcy-only) priority of retiree medical benefits. Not only are springing priorities counterproductive to a company’s reorganization process, but they are also not even particularly effective for the priority’s recipients in the end, as both the Chrysler and GM cases demonstrated with retiree medical benefits.

Number of Pages in PDF File: 36

Keywords: bankruptcy, chapter 11, retiree medical benefits, asset sales, section 363

Accepted Paper Series