One day after Detroit’s Emergency Manager announced that city administrators were filing a petition to declare bankruptcy, a Michigan court has ordered that it be withdrawn, citing a violation of the state's constitution.
The Chapter 9 filing on Thursday, which makes Detroit the largest
city in American history to file for bankruptcy, led to a dump of
city bonds by investors who remained skittish despite
reassurances made by Michigan Governor Rick Snyder and Detroit's
Emergency Manager Kevyn Orr, reports Reuters.
Lawsuits have already been filed in response to the bankruptcy
bid, and Ingham County Circuit Court Judge Rosemarie Aquilina
ruled on Friday that the process must be halted.
“I have some very serious
concerns because there was this rush to bankruptcy court that
didn’t have to occur and shouldn’t have occurred,” said
Judge Rosemarie Aquilina.
Governor Snyder lacks the power to "diminish or impair pension
benefits," according to the ruling by Judge Aquilina.
Orr, who was appointed by Snyder in March to try and resolve the
city's financial crisis, had said in June that the chances of
bankruptcy for Detroit were 50-50.
Seemingly unable to strike a deal with the city’s creditors to
tackle Detroit’s $18.5 billion in long-term debt, Orr
acknowledged that court battles over the need for a bankruptcy
filing could be protracted and difficult, while also setting the
seemingly ambitious goal of concluding the bankruptcy process no
later than September 2014.
"I've got 15 months left on my
tenure. I promised the governor that we were going to try and get
this done within the time frame provided by the statute,"
said Orr.
Bankruptcy experts cited by Reuters, however, expect the
bankruptcy court case could last years and cost tens of millions
of dollars.
The first test in the city's Chapter 9 proceeding will be whether
Detroit has explored other reasonable options before filing, and
the city will "have an
eligibility fight, I suspect" over that qualification, Orr
said.
Orr met with over 180 bond insurers, pension trustees, union
representatives and an assortment of creditors in June and asked
them to accept about 10 cents on the dollar for the city’s debt,
reports the AP.
The White House meanwhile appeared to be closely watching the
bankruptcy proceedings.
On Friday, Judge Aquilina said she intended to keep the
administration informed regarding matters affecting pensions by
sending her rulings in the state cases directly to US President
Barack Obama, according to her law clerk, as well as attorney
William Wertheimer, who is representing retirees in a lawsuit.
Detroit had for years relied on borrowing and deferred payments
to its pension funds to keep the city afloat, said Orr.