Washington, D.C. – A U.S. Supreme Court justice has delayed Chrysler’s exit from bankruptcy, putting its sale to Fiat SpA on hold, according to Automotive News. The bankruptcy exit was expected to be completed on Friday, June 5, but was challenged by the Indiana Treasurer of State on behalf of pension funds.

The funds argued that the sale of Chrysler to Fiat would unlawfully reward unsecured creditors ahead of secured ones. The funds also argued that bailout funding provided by the U.S. Treasury was intended by Congress only to be used for banks. They asked the Supreme Court to stop the sale while they challenged the deal.

Justice Ruth Bader Ginsburg said that the orders of the bankruptcy judge allowing the sale “are stayed pending further order of the undersigned or of the court.” It is not clear if the order was designed to give the high court more time to consider the dispute, or whether the Supreme Court would hear the legal challenge to the sale.

Fiat can walk away from the deal if it is not closed by June 15, 2009.

Automotive News reported that the Chrysler case could set a precedent for General Motors, which is using a similar quick-sale strategy in its bankruptcy proceedings.



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