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Saab faces bankruptcy after court rejects plea

posted 8 Sept 2011, 10:05 by Mpelembe   [ updated 8 Sept 2011, 10:17 ]
In a further setback for carmaker Saab, a Swedish court rejects its application for protection from creditors while it awaits vital Chinese investment. The union is considering a bankruptcy request.

TROLLHATTAN, SWEDEN (SEPTEMBER 8, 2011) REUTERS - Ailing carmaker Saab was pushed closer to bankruptcy on Thursday (September 8) after a Swedish court rejected its application for protection from creditors while it awaits vital Chinese investment.

The court decision could open the way for Saab itself, unions or creditors to seek bankruptcy for a company that has made vehicles for more than 60 years, but where a chronic shortage of cash has halted production and left suppliers unpaid for months.

"Saab is a large and important company in west Sweden. Many people are directly or indirectly dependent on what happens to Saab. It is obvious everyone that has followed Saab during recent years has compassion with the people who are now living in uncertainty for their future. The trial will follow the demands that are set up by the law. At its trial the court has concluded the demands of the law have not been met. The court has therefore disapproved the proposal," Judge Gunnar Krantz told reporters at the Vanersborg district court in west Sweden.

The court said there was no reason to believe a new creditor protection process, known as a reconstruction, would work.

Saab, when it was owned by General Motors, went through a reconstruction in 2009-2010.

"Saab has a long history. Unfortunately in the last few years it has suffered from financial problems. In 2009, a substantial reconstruction took place and after that measures were taken to provide the company with capital. Despite that, the problems remain. The court thinks that in contrast to what the company thinks, the earlier reconstruction hasn't been successful," Krantz added.

The powerful IF Metall union was the first to say it was now considering seeking Saab's bankruptcy. Unions have said they would do this to activate a state scheme to pay wages.

Saab, based in the western town of Trollhattan, was rescued from closure by General Motors in early 2010 by Amsterdam-listed Spyker Cars, now called Swedish Automobile.

Swedish Automobile had said it wanted protection from creditors to stop them pushing the car firm into bankruptcy and to allow it to work on securing its future as it waits for investments from two Chinese car companies, Pangda Automobile Trade Co Ltd and Zhejiang Youngman Lotus Automobile.

They have agreed to take a combined majority stake in the firm for a total of 245 million euros (344 million US dollars) but the investments need official Chinese approval.

The court said it was not clear if this would be forthcoming and that Saab had only provided very general information about negotiations for other financing options.

"Apart from the fact that it is unclear if the company will be getting more funds from the Chinese companies and other interested parts, it is unclear if the planned financing is enough to solve the company's financial problems in a sustainable way," Krantz said.

No one at Saab was immediately available for comment.

Chinese authorities have halted planned investments in the past. This included Saab's failed deal with Hawtai Motor Group in May and Sichuan Tengzhong Heavy Industrial machinery's bid for GM's Hummer, which collapsed in 2010.

Saab has had production at its Trollhattan plant at an almost continuous standstill since April because suppliers refused to provide parts until they received payment. It also failed to pay salaries in August.

Krantz said this had caused caused a loss of "good will" and a weakening of the Saab brand.

"In assessing whether there is reason to believe a company reconstruction could be successful, one also has to look at recent events. Production has, with some shorter exceptions, been at a stand still since March this year. The district court assesses this has brought 'good will' losses and a weakening of the Saab brand and it is clear this has affected possibilities to succeed with core business," he said.

Saab can appeal the decision up to September 29, but at court a spokeswoman said while Saab had no court protection, creditors could still seek to make it bankrupt.