A Delaware bankruptcy judge told auto parts supplier Visteon Corp. on Tuesday that it must restore health and life insurance benefits for more than 6,500 retirees.

Judge Christopher Sontchi made the remarks in advance of a scheduled hearing on motions by attorneys for the retirees seeking to compel Van Buren Township, Mich.-based Visteon to restore benefits it terminated after Sontchi ruled in December that the company could do so.

A union representing some 2,100 people who worked at two Visteon plants in Indiana challenged Sontchi’s ruling, and a federal appeals court panel overturned his decision last month. The panel ruled that Visteon could not terminate the retiree benefits without following certain procedures spelled out by the bankruptcy code.

While taking initial steps to restore the benefits, Visteon also challenged the appeal panel’s ruling, which it described as “unique if not revolutionary” and conflicting with an earlier federal appeals court decision.

But Visteon’s request for a hearing by the full appeals court was denied, and Sontchi said his reading of the panel’s ruling left no doubt about what it meant.

“All retiree benefits that were terminated in December will need to be restored at some point, and that restoration will need to be backdated,” said Sontchi.

The judge scheduled a hearing for Friday on the how and when to restore benefits to retirees who worked at the shuttered Indiana plants and are represented by the Industrial Division of the Communications Workers of America, as well as United Auto Workers retirees who worked in Pennsylvania and Puerto Rico, and some 1,500 salaried retirees

The judge was to hear arguments later Tuesday on a request by the salaried retirees to appoint an official committee to represent nonunion retirees in Visteon’s bankruptcy.

Visteon, a top supplier to and former subsidiary of Ford Motor Co., filed for bankruptcy protection in May 2009 after automakers cut production as revenue plunged during the recession.

Visteon argued last year that the retiree benefits were one of its largest liabilities and posed a significant obstacle to a successful reorganization. The company claimed that the retiree health and life insurance subsidies constituted a liability of about $310 million.

But Susan Jennik, an attorney for the union representing the Indiana retirees, said the company is in much better shape now than it was last year.

Visteon announced last month that it had resolved a dispute between secured lenders and unsecured bondholders fighting for control of the reorganized company.

The secured lenders have agreed to back a reorganization plan giving the bondholders roughly a 95 percent stake in the reorganized company in exchange for buying $300 million of stock and raising another $950 million by backing a stock rights offering to help pay off the secured lenders.

Visteon said in a court filing last week that the bondholders have to raise more than $1 billion to back the rights offering and are in position to deliver on the $300 million direct purchase agreement. The company also said shareholders who challenged its reorganization plan have dropped their objections in return for being allowed to participate in the direct stock purchase and being reimbursed $4.25 million in fees and expenses.

(Copyright 2010 by The Associated Press. All Rights Reserved.)

  1. DC MIKE says:

    What does this do to the Chrysler and GM retiree settlements? Interesting.

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