Plastech automatic stay upheld, Chrysler cannot immediately take back tooling

By Caroline Salls

Pittsburgh, Feb. 19 - A bankruptcy judge upheld Plastech Engineered Products, Inc.'s automatic stay Tuesday, keeping Chrysler LLC from forcing Plastech to immediately return tooling used to manufacture parts for Chrysler, according to a ruling filed with the U.S. Bankruptcy Court for the Eastern District of Michigan.

According to the ruling filed Tuesday by judge Phillip J. Shefferly, Plastech argued that Chrysler did not properly terminate its supply contract, and that it is too early in the company's bankruptcy case to grant relief from the automatic stay that protects the bankrupt company from its creditors.

Shefferly said Plastech included tooling return provisions in two of the accommodation agreements it used to secure financing from its major customers before it filed for bankruptcy.

But Plastech contended that it still has an interest in Chrysler's paid and unpaid tooling, and Plastech said it needs all of the tooling to complete its reorganization.

Shefferly said in the ruling that Plastech's possession of the tooling gives it enough of an interest in the tooling to trigger protection under the automatic stay.

In addition, Plastech said it would be forced to close many of its plants and stop supplying parts to its other customers if Chrysler was allowed to take back the tooling in question.

"In short, there are many parties who have legitimate and substantial interests in this case that will be greatly affected if not destroyed by a lift of the automatic stay at this point in the case," Shefferly said in his ruling.

"Chrysler's rights and interests are valid and important, but so are those of the debtor and the other constituents in this case."

As previously reported, Chrysler also filed a lawsuit in early February in which it asked the court to order Plastech to turn over the tooling. Chrysler alleged that it has an exclusive ownership interest in the tools in question.

Shefferly said the automatic stay is only a preliminary action, and disputes over the tooling ownership interests can still be resolved under the lawsuit.

"The ultimate issues regarding Chrysler's actions to terminate its contracts with the debtor pre-petition, the efficacy of those actions and the interests of the various parties in the Chrysler tooling will have to wait until another day," Shefferly said in the ruling.

According to Chrysler's complaint, Plastech is insolvent and is no longer able to meet Chrysler's production requirements. As a result, Chrysler said it needs the tools immediately to transfer production of its parts to a new supplier.

Chrysler said in the complaint that Plastech told it on Jan. 22 that it was experiencing liquidity problems and would need to stop producing parts until Chrysler and Plastech's other major customers provided additional financing accommodations.

As a result, Chrysler said it agreed to pay $10.7 million to Plastech sooner than it was due under the existing supply contract. Chrysler said it made a total of $40 million in accelerated supply payments from its customers.

Chrysler said Plastech then agreed to continue to supply parts and to immediately turn over the tooling upon demand.

Since Plastech defaulted on the accommodation agreement, Chrysler said it terminated all of its purchase agreements and contracts with Plastech on Feb. 1 and made a demand for return of the tooling.

Chrysler then requested the relief from the automatic stay that was denied Tuesday.

Plastech, a Dearborn, Mich.-based auto parts supplier, filed for bankruptcy on Feb. 1. Its Chapter 11 case number is 08-42417.

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