The Big Three bailout will not work.

An out-of-court restructuring does not ultimately provide appropriate mechanisms to address the financial, operational and management issues facing General Motors Corp., Chrysler LLC and Ford Motor Co.

A Chapter 11 bankruptcy process, with time- and issue-tested court oversight, has a realistic chance of success. Chapter 11 provides the debtor with statutory tools, required time frames and a single court to decide all disputes. The process offers negotiating leverage on every side to reach a consensual and effective resolution to the disputes necessarily compromised in a meaningful restructuring process. The proposed bailout structure and process lacks the imposed urgency of Chapter 11, which realistically requires parties-in-interest to sit at the negotiating table. The bailout plan, with a car czar (with no defined legally enforceable authority over third parties), does not create a legitimate and binding process that, like a Chapter 11 proceeding, would require parties to accept or otherwise be bound by enforceable and essential changes to important contracts and financial obligations.

To achieve a meaningful restructuring, the Big Three require (1) contractual concessions from the United Auto Workers union, (2) reduction, if not elimination, of legacy healthcare and retirement costs, (3) contractual concessions and contract terminations related to the manufacture, distribution and sale of automobiles, and (4) modification of existing loan facilities, public securities and other financial obligations.

Absent Chapter 11 or some other macrolegal proceeding (like a federal receivership), the Big Three's counterparties, including union employees, retirees, suppliers, transportation companies, dealers, landlords, lessors, bank lenders, bondholders, general unsecured creditors and shareholders, are under no legal requirement to make any contract modification, provide any concession or otherwise negotiate or cooperate with the Big Three's proposed restructurings. In addition, any person, be they one of the aforementioned constituents, governmental tax and regulatory agencies, customers, tort claimants, plaintiffs in pending litigation or any other aggrieved party, retain the right to pursue all legal claims, rights, remedies and causes of action in any chosen forum without any lawful restrictions and without regard for the legal or economic impact one action, by one constituent, against one of the Big Three, may have on its other constituents.

Accordingly, notwithstanding the Big Three's desire and need to engage all of these third parties in a restructuring exercise necessary to avoid extinction, none of these third parties are themselves required to participate, and none of them can be forced to accept the treatment the Big Three may require of them to survive. In other words, the out-of-court restructuring sought by the Big Three, and purportedly supported by a government bailout, is wholly dependent upon the discretion, judgment and, ultimately, the agreement of virtually everyone with whom the Big Three do business. Many, if not most, of these third parties rely on the Big Three as a lifeline, and their own survival may be dependent upon the success of the Big Three's restructuring efforts. There are undoubtedly third parties that are not dependent on the Big Three to survive and prosper, and others that are, but are nonetheless willing to leverage this point and play a game of chicken to gain an advantage over, and better treatment than, other similarly situated third parties. Perhaps, as a result, some, and maybe a lot, of these third parties will hold out on negotiations, concede only partially (and not to the extent required) or condition any concessions on overall agreement by all required parties. Accordingly, there will be rampant retrading, mistrust and delay. As a result, extraordinary costs will be incurred, progress will be slow, and losses will continue to mount.

If there were no available legal procedures in the laws of the U.S. to avoid this pending debacle, the proposed oversight board, or government representative as arbitrator, may be an approachable option. Fortunately, however, we in America are not void of a legal process that promotes fairness, equity, nondiscrimination, fair notice and an independent person to make rules of law and findings of fact and enforce them, in many instances, over the objections of the very third parties directly affected by the decisions. That process is Chapter 11 under the Federal Bankruptcy Statute (Title 11 of the United States Code), and that independent person is the bankruptcy judge.

Rather than engage in a futile out-of-court restructuring effort, government support should be provided only in Chapter 11 cases for the Big Three. There is no doubt the Big Three are fully prepared to embark on a Chapter 11 process and have a full comprehension of the clear benefits and negotiating leverage the Bankruptcy Code and the Chapter 11 process provides. There is also no doubt that the Big Three management and boards of directors fear the inability to sell product to the consumer if the consumer fears the loss of promised warranty and maintenance support, supplier failures that could cripple production lines and public disclosure and scrutiny of the long line of decisions that led the Big Three CEOs to Washington, hats in hands, seeking public aid to survive.

It's bad enough America's capitalistic business model has lost its luster in recent months in favor of saving our financial system (and that of the world) from near certain ruin. That financial system could not similarly avail itself of the protections and benefits of Chapter 11 due to Bankruptcy Code provisions (enacted by Congress) that effectively opt-out the financial firms from basic and protective contract and automatic stay provisions. Plus, the Bankruptcy Code was not designed to rehabilitate and reorganize the securities industry populated with firms specializing in intangible (i.e., synthetic) financial derivatives, swaps, etc.

The same sad state of affairs does not pertain to the automobile industry. The Bankruptcy Code was designed and has been used in a myriad of "old world" industries such as steel, airlines, retail, hospitality and manufacturing with success. None of us should shun proven process and remedies in favor of the "quick fix."

Chapter 11 for the Big Three could work, and if it does not, maybe that is the correct and just result.

Success and failure are concepts American business and politics have forever embraced. The government could participate in the Big Three's Chapter 11 cases and protect the American taxpayers, allow the counterparties and the Big Three to negotiate and, if need be, litigate in a timely and court-supervised fashion to achieve long-term financial and operational viability and, most importantly, provide the credit support necessary to sustain business operations both in the short term and upon emergence from Chapter 11, provided that government required financial and operational benchmarks, thresholds and covenants are satisfied.

Here's how it might work:

Debtor-in-possession financing and government support. Instead of spooning out $15 billion now in government aid, out of court, the public aid should be available to the Big Three as either direct government loans pursuant to a court-ordered, debtor-in-possession financing facility or government guaranties in favor of commercial lenders. Either way, with loan or guaranty performance covenants, the government would have the right and ability to impose the will and desires of America to force the Big Three to effect a meaningful and effective restructuring or risk extinction. The Big Three's counterparties could fairly participate in the process. Importantly, and to address major concerns of the Big Three, the debtor-in-possession facility could -- and should -- include provisions for (1) continued and uninterrupted supplier payments, at least until the required post-restructuring supplier base is determined and production therewith is harmonized with manufacturing needs and sales levels; and (2) a "sinking fund" to guaranty maintenance and warranty for existing and new customers, which might, if there is a Big Three failure, be a facility that is transferable (with appropriate compensation) to one or more of the healthy U.S.-based automobile manufacturers (including Toyota Motor Corp., Honda Motor Co. Ltd., etc.).

Under the current out-of-court bailout philosophy, the government has no such rights or abilities, and the Big Three counterparties have no proscribed protections, but are instead left to the tactics and strategies of management with little or no supervision or legal recourse available.

The UAW contract. As discussed, the UAW is under no legal requirement to alter wages, work rules or other provisions in its contracts with the Big Three. There is no requirement that the UAW members vote to eliminate the "job bank" (that pays nonworkers full pay) or change wages or work rules to achieve market standard for the Big Three. In Chapter 11, the Big Three can reject those burdensome contracts, provided the requirements of Section 1113 of the Bankruptcy Code are satisfied. Those requirements, in a nutshell, require good-faith negotiations between the parties (with full disclosure and, if desired, participation by other creditors and parties-in-interest) to achieve contract modifications. If agreement is not reached within statutorily prescribed time frames, the court may order rejection (termination) of the union contracts and allow the debtor to hire at will or on revised (new) union terms. Think of the leverage the Big Three have there -- look at the success of the airlines using that leverage with the pilots and flight attendant unions to achieve financial savings in their own Chapter 11 cases.

Legacy retiree healthcare and pension expenses. Similarly, Section 1114 of the Bankruptcy Code provides the same opportunities for the Big Three in reducing, if not eliminating, the legacy expenses, as Section 1113 pertains to the UAW contracts -- with one important practical difference: While the working UAW members want to preserve jobs for themselves and will vote for concessions to do so, especially with rising competition for fewer jobs, retired workers have no incentive to agree outside of court to terminate or massively reduce their contractual retirement benefits. That result will only come through Chapter 11, and that result is imperative to successful restructurings of the Big Three. Congress is naive to believe otherwise. The Big Three management would likely agree, and so would the UAW and the retirees. Using only the threat of filing Chapter 11 to achieve this result wastes time and money.

Facilities, contracts and operations. What better leverage in negotiating contract modifications can there be for the Big Three than what is provided for in the Bankruptcy Code? The automatic stay provision of Section 362 prohibits enforcement rights of the counterparties. The executory contract provisions of Section 365 allow the debtors to reject (terminate) unwanted, unnecessary or burdensome contracts. Upon rejection, the counterparties are left with prepetition unsecured claims for damages. Those claims must, in Chapter 11, be paid on the same terms as all other unsecured claims. No discrimination between claimants would be allowed. Such is not the case in an out-of-court bailout. The Chapter 11 process, however, provides for a legal certainty at the end of the case, thereby creating meaningful leverage to bring all parties to the negotiating table.

Capital structure restructuring. Outside of Chapter 11, the Big Three's creditors must agree, in their sole discretion, to accept less than full payment and performance of the obligations owed them (absent a court order in a lawsuit). In Chapter 11, dissenting creditors in a class of creditors can be forced to take otherwise unacceptable payment and performance treatment if statutorily required voting/acceptance thresholds for the creditor class are satisfied. In addition, even if an entire class of (similarly situated) creditors (or equity interest holders) vote to reject payment and performance treatment, the debtor's desired terms can be forced (or crammed down) on rejecting classes if certain valuation and distribution thresholds are satisfied.

How, possibly, can the Big Three accomplish the full agreement of the holders of billions of dollars of creditor claims, in an out-of-court process, necessary to achieve the capital structure that can be had in emerging from Chapter 11?

Exit facility financing. See above. What worked to get the Big Three through Chapter 11 can work for two to four years after emergence based on the same concepts, with similar terms and similar goals.

Management and the board of directors. Simple -- should they stay or should they go? In the life or death situation faced by the Big Three, nothing should be sacred. To assure such a thorough review and analysis, the transparency and required disclosures in a Chapter 11 case provide significantly more comfort for creditors, investors and the car-buying public than the expected "we know best," out-of-court position of legacy management.

Public aid is not a corporate America right and should not be a risk-free corporate America opportunity. If public aid for Big Three blue-collar automobile workers is the goal, how much would each Big Three and supplier/dealer employee and retiree receive if the total out-of-court bailout money (at least $34 billion, and likely more) were simply distributed, pro rata, to those workers and the Big Three just closed down? If we are not going to give direct handouts to the workers and, instead, provide indirect aid through a Big Three restructuring effort, that relief should be provided through a process that is time- and issue-tested, fair, equitable and transparent. That process is court-supervised Chapter 11 proceedings. A bailout concocted with effectively unrestricted money and the fox in the hen house is not the answer. Before time and money are wasted, before too much more of Detroit's credibility as a manufacturer is lost, the Big Three need to redirect their restructuring process. Turn around, Detroit -- Chapter 11 is your only chance.

Jeff J. Marwil is a partner at the law firm Winston & Strawn LLP and co-chair of the firm's restructuring and insolvency group.