WILMINGTON, Del. (Reuters) -- A U.S. judge rejected a planned sale of Fisker Automotive to a Hong Kong tycoon, opening the way for China's largest auto parts company to buy the defunct maker of the Karma plug-in hybrid sports car.
U.S. Bankruptcy Judge Kevin Gross today said competitive bidding between a company affiliated with the tycoon, Richard Li, and a unit of auto parts maker Wanxiang Group of China 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 favored method," said Gross.
Gross made the ruling at a hearing in the U.S. Bankruptcy Court in Wilmington, Del., to determine how to proceed in Fisker's bankruptcy.
Fisker filed for bankruptcy in November with a plan to sell its assets to Li, without going the typical route in a Chapter 11 bankruptcy of putting the business on the auction block.
Li was planning to "credit bid," or forgive a portion of what Fisker owes on a $168 million secured loan that he holds. Under the plan, other creditors were likely to get next to nothing.
Li bought the loan for $25 million from the U.S. government at an auction in October. The government extended the loan to the start-up in 2009 under a program 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 $35 million. The unsecured creditors said the Wanxiang plan could fetch more than 40 cents for every dollar they are owed.
At Friday's hearing, Gross said he will still allow Li to make a credit bid, but said he will cap the amount at the $25 million Li paid for the loan.
Li's attorney, Tobias Keller, called such a cap on a credit bid a "radical" proposal.
"Be careful of the precedent you're setting for yourself and your brethren," Keller said.
Fisker shut down production in 2012 after a series of missteps and recalls of its luxury cars, which were priced at more than $100,000.