From Chrysler and General Motors to Detroit

28 Pages Posted: 4 Sep 2014 Last revised: 9 Apr 2015

See all articles by David A. Skeel

David A. Skeel

University of Pennsylvania Law School; European Corporate Governance Institute (ECGI)

Date Written: 2015

Abstract

In the past five years, three of the most remarkable bankruptcy cases in American history have come out of Detroit: the bankruptcies of Chrysler and General Motors in 2009, and of Detroit itself in 2013. The principal objective of this Article is simply to show that the Grand Bargain at the heart of the Detroit bankruptcy is the direct offspring of the bankruptcy sale transactions that were used to restructure Chrysler and GM. The proponents of Detroit’s “Grand Bargain” never would have dreamed up the transaction were it not for the federal government-engineered carmaker bankruptcies. The Article’s second objective, based the comparison of the Detroit cases, is to make a very brief case for reform of bankruptcy sales.

Part I of the Article briefly surveys the increased use of bankruptcy sales and related shifts in Chapter 11 practice over the past several decades. Part II describes the Chrysler and General Motors bankruptcies, which built on but radically expanded the scope of a bankruptcy sale. Part III turns to the Detroit bankruptcy, focusing primarily on the “Grand Bargain,” while also exploring the city’s use of another recent bankruptcy strategy, known as “gifting.” The Article concludes, in a brief final part, that the Detroit cases have pushed recent bankruptcy innovations to their logical extremes — and beyond — exposing the need to update the oversight of bankruptcy sales.

Keywords: Municipal Bankruptcy, Section 363 asset sales, absolute priority rule, unfair discrimination, bailouts, bankruptcy oversight & regulation, pension restructuring, union contracts, gifting, Chapter 9, debtor in possession, sub rosa plan, qualified bidder requirements, Detroit Institute of Arts

JEL Classification: D72, G33, G38, H74, H75, H81, J32, K22, K39

Suggested Citation

Skeel, David A., From Chrysler and General Motors to Detroit (2015). Widener Law Journal, Vol. 24, P. 121, 2015; U of Penn, Inst for Law & Econ Research Paper No. 14-31. Available at SSRN: https://ssrn.com/abstract=2491022

David A. Skeel (Contact Author)

University of Pennsylvania Law School ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States
215-573-9859 (Phone)
215-573-2025 (Fax)

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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