A US judge rejected a planned sale of Fisker Automotive to Hong Kong businessman Richard Li Tzar-kai in favour of competitive bidding. The decision opens the way for China's largest car-parts company to bid for the maker of the Karma plug-in hybrid sports car.
US bankruptcy judge Kevin Gross said competitive bidding between a company affiliated with Li and a unit of car-parts maker Wanxiang was the best way forward.
"I think that, for me, at the end of the case, whether or not the price paid was fair or reasonable, I think an auction will provide that mechanism. That is the most favoured method," Gross said.
He scheduled a hearing tomorrow to decide how to proceed with an auction.
Gross made the ruling at a hearing in the US bankruptcy court in Wilmington, Delaware, that was held to determine how to proceed with Fisker's bankruptcy.
Fisker filed for bankruptcy in November with a plan to forgo the typical route in Chapter 11 procedure of putting the business on the auction block.
Li was planning to "credit bid", or forgive a portion of what Fisker owed on a US$168 million secured loan that he holds. Under the plan, other creditors were likely to get next to nothing.
Li bought the loan for US$25 million from the US government at an auction in October. The government extended the loan to the company in 2009 under a programme to promote cleaner vehicles.
Fisker's unsecured creditors objected to the company's plan and teamed up with Wanxiang, which has said it plans to start the cash bidding at US$35 million.
The unsecured creditors said the Wanxiang plan could fetch more than 40 US cents for every dollar they were owed.
At Friday's hearing, Gross said he would still allow Li to make a credit bid but that he would cap the amount at the US$25 million Li paid for the loan.
Li's lawyer, Tobias Keller, called such a cap on a credit bid "radical". "Be careful of the precedent you're setting for yourself and your brethren," he said.
Li's company, Hybrid Tech Holdings, said in a statement it was "deeply disappointed" with Gross' ruling. "Despite the court's decision, Hybrid will participate in the auction, as we still feel Hybrid represents the most competitive and viable bid for Fisker's future," it said.
Fisker shut down production in 2012 after a series of missteps and recalls of its cars, which sell for more than US$100,000.