Tony O'Kane | Jun 9, 2009

A US SUPREME COURT Justice has temporarily blocked the sale of Chrysler LLC to a consortium led by Fiat SpA, a move made at the behest of three Indiana pension funds who say the deal is illegal.

Justice Ruth Bader Ginsberg ordered a stay of the sale on Monday, giving the Supreme Court time to consider the appeal lodged by the Indiana pension funds.

The pension funds allege that the sale of Chrysler unlawfully rewards unsecured creditors ahead of secured lenders and amounts to an illegal reorganization plan. The three funds collectively hold around US$42 million of Chrysler's $6.9 billion in secured loans.

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If their appeal drags out, the pension funds may singlehandedly torpedo Chysler's bid to launch a successful reorganisation. If the deal isn't finalised before June 15, Fiat is free to walk away - a situation that Chrysler and the Obama administration are keen to avoid.

Should the pension funds win their appeal, it could also have dire consequences for General Motors' restructuring plans. If a precendent is set by the Chrysler appeal, then that could open the door for similar claims against GM.

According to congressman Gary Peters of Michigan, the Indiana pension funds' appeal is not only against the best interests of Chrysler, but also those of the people in that state.

"Indiana officials are fighting over $4.8 million at the risk of costing their state over $20 million in tax revenue, tens of millions more in related costs and putting 4,000 of their own people out of work," Congressman Peters said to Reuters.

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