If Kevyn Orr gets his way, Detroit's bankruptcy will move faster than
many outsiders expect.
Orr, whom Gov. Rick Snyder appointed as Detroit's emergency manager in March with an 18-month tenure, expects to steer Detroit out of Chapter 9 bankruptcy by September 2014.
Many bankruptcy experts said that is an ambitious time frame. Orange County, Calif., spent 18 months in Chapter 11 bankruptcy in the 1990s, and Jefferson County, Ala., has been in bankruptcy since November 2011.
But Orr doesn't have that long.
"Time is slipping away," he told the Free Press on Friday. "I only have 15 months."
Although Chapter 9 is different from Chapter 11, the rare nature of Chapter 9 introduces uncertainty about how the basic procedural elements of the case will unfold. There are early indications that Orr will follow a path similar to the one his former law firm and now adviser, Jones Day, charted with Chrysler.
In 2009, General Motors and Chrysler slipped through bankruptcy in a matter of weeks by using novel legal arguments and identifying loopholes to reduce or eliminate some of the laborious requirements typically associated with bankruptcy. Of course, GM and Chrysler got federal money that helped to speed up the process -- an advantage that Detroit will not have. But some of the legal tactics may be similar.
Asked whether he is looking for similar shortcuts within the law to tighten the city's time line, Orr said, "Exactly."
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During Chrysler's bankruptcy, for example, Orr's Jones Day team slashed months off the process by eliminating a requirement to seek and vet buyers for the automaker. Orr is following a similar script with Detroit by suggesting that it's a well-documented fact that the city has been in decline for decades so it doesn't have to go through the lengthy process of proving it. "This didn't happen overnight," he said.
Speed is crucial in bankruptcy court because every month that passes costs the city millions of dollars for legal work and consultants.
As the city enters uncharted territory, lawyers, bondholders and labor officials are training their attention on the Motor City's Chapter 9 case for clues about how Orr plans to navigate the process smoothly.
What happens next
The first thing the city has to do after filing for bankruptcy is defend its right to file at all. To beat the challenges, Orr's team offered a two-pronged approach: Attorneys said in a court filing that it's no longer practical for the city to negotiate with creditors outside of court, and they said that the city negotiated in good faith before it sought bankruptcy protection.
Detroit's pension boards complained that Orr didn't conduct extensive negotiations to reach a resolution over the city's unfunded pension liabilities, which Orr has pegged at $3.5 billion. If a judge agrees, the case could be dismissed and the city would have to return to the bargaining table.
To qualify for Chapter 9, Orr must prove that Detroit is insolvent. "We know there (is) going to be opposition to eligibility and there there are going to be discussions regarding whether or not we engaged in good faith" negotiations, Orr
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