Creditors committee for "Old Chrysler" files lawsuit over split with Daimler

NEW YORK August 18, 2009; Bree Fowler writing for the AP reported that Chrysler LLC's creditors have filed a lawsuit against Daimler AG charging that the German automaker unlawfully stripped billions of dollars in assets from the U.S. carmaker before selling it to a private equity firm.

In the suit, filed Monday, the creditors claim that in the months leading up to the 2007 sale of most of Chrysler to Cerberus Capital Management LP, Daimler undertook a restructuring of Chrysler that removed key parts of the company for little or nothing in return.

"This restructuring and sale served Daimler's interests well, enabling it to extract the best possible terms in its sale of the debtor, while eliminating billions of dollars of actual and contingent pension and other liabilities," the creditors said in their lawsuit. "But the transaction caused the debtor (and its creditors) to suffer grievous harm."

Julia Engelhardt, a spokeswoman for Daimler, Tuesday said the automaker is confident that the lawsuit's accusations are without merit and will defend itself against them.

Specifically, the creditors say Daimler split off Chrysler's U.S. and Canadian financing units in order to get a better sale price from Cerberus. As a result of the split, the assets of the financing units were not subject to Chrysler creditors' claims when the automaker filed for bankruptcy protection on April 30.

Under a deal backed by the U.S. government, the bulk of Chrysler's assets were acquired by a group led by Italy's Fiat Group SpA and emerged from bankruptcy protection as a new company about 42 days later.

Chrysler's secured lenders received $2 billion for their $6.9 billion in debt, while most of the company's unsecured creditors have been forced to seek compensation from the assets left over from the sale -- known as "Old Chrysler." It's doubtful that there will be enough left to pay their claims.

The lawsuit was filed with the New York bankruptcy court overseeing the liquidation of the pieces of Chrysler not included in the sale to Fiat. It seeks damages to be determined through a trial plus interest and certain legal fees.

Chrysler Group LLC, the new company created by the sale to the Fiat-led group, is not involved in the lawsuit.

Daimler has recorded billions in losses related to Chrysler since selling off most of its stake to Cerberus. That firm's acquisition of 80.1 percent of Chrysler dissolved a stormy "merger of equals" made in 1998 between Daimler-Benz and Chrysler Corp. But in November 2008, Cerberus accused Daimler of intentionally misleading it before it sold the controlling stake to the private equity firm in a $7.4 billion deal.

In April of this year, Daimler reached a deal to divest its remaining 19.9 percent stake in Chrysler LLC.