UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION ) Chapter 11 ) COLLINS & AIKMAN ) Case No.

05-55927-R CORPORATION, et al., ) (Jointly Administered) ) Debtors. ) Honorable Steven W. Rhodes ____________________________________)_________________________________________ OBJECTION OF GENERAL ELECTRIC CAPITAL CORPORATION TO DEBTORS MOTION FOR ENTRY OF AN ORDER AUTHORIZING DEBTORS TO SELL OR ABANDON CERTAIN EQUIPMENT IN WHICH GENERAL ELECTRIC CAPITAL CORPORATION ASSERTS AN INTEREST General Electric Capital Corporation (GECC), by and through its attorneys, hereby objects (this Objection) to the Debtors Motion for Entry Of An Order Authorizing Debtors To Sell Or Abandon Certain Equipment In Which General Electric Capital Corporation Asserts An Interest (the Motion).1 GECC and the Debtors are currently in litigation regarding equipment that GECC leased to Collins & Aikman Products Co. (Products) pursuant to three Master Lease Agreements. GECC objects to the procedures the Debtors seek to impose on GECC with respect to the sale or abandonment of certain equipment leased under the Master Lease Agreements (the Debtors Procedures). In support hereof, GECC respectfully represents as follows: Preliminary Statement Pursuant to the Motion, the Debtors are seeking to cause this Court to require GECC to agree upon procedures pursuant to which the Debtors can sell or abandon the equipment leased under the Master Lease Agreements. However, under the Master Lease Agreements, the Debtors IN RE:

Capitalized terms used herein and not otherwise defined shall have the meaning ascribed to them in the Motion.

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are not permitted to sell or abandon the equipment because they are currently in default. Moreover, detailed procedures regarding the sale or abandonment of equipment already exist under the Master Lease Agreements. This Court should not alter the procedures previously contracted to by both the Debtors and GECC. If the Debtors cure the defaults, the Debtors should only be permitted to sell or abandon the equipment in accordance with the already agreed upon procedures found in the Master Lease Agreements. Background 1. On May 17, 2005 (the Petition Date), the Debtors commenced these cases by

filing voluntary petitions for reorganization under chapter 11 of the Bankruptcy Code. 2. Since that time, the Debtors have continued in possession of their property and

have operated and managed their businesses, as debtors in possession, pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. 3. This Court has jurisdiction over this matter pursuant to 28 U.S.C. 157 and

1334. This is a core proceeding pursuant to 28 U.S.C. 157(b)(2). 4. The Debtors are in the business of supplying parts to automotive manufacturers. Master Lease Agreements 5. GECC and Products have entered into (a) the Master Lease Agreement dated as of

August 7, 2001, as amended, (b) the Master Lease Agreement dated as of December 20, 2001, as amended, and (c) the Master Lease Agreement dated as of June 25, 2004, as amended (collectively, the Master Lease Agreements), pursuant to which GECC leases equipment to Products.

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Procedural History 6. On April 19, 2006, the Debtors filed a Complaint against GECC (the

Complaint) initiating an adversary proceeding (the Products Adversary Proceeding) seeking to recharacterize the Master Lease Agreements as secured financing agreements pursuant to New York law. Objection 7. Pursuant to the Motion, the Debtors are seeking authority to sell or abandon

certain equipment as part of the wind-down of their Fabrics business. 8. Section 3 of each of the Master Lease Agreements specifically describes the

procedures agreed upon by the Debtors and GECC with respect to the sale and/or abandonment of equipment leased under the Master Lease Agreements. Pursuant to the Master Lease Agreements the Debtors are not permitted to sell or abandon any equipment when defaults exist under the Master Lease Agreements. The Debtors cannot dispute that defaults currently exist under the Master Lease Agreements. Accordingly, until the Debtors cure such defaults, the Debtors are not permitted to sell or abandon any of the equipment under the Master Lease Agreements. 9. Even if no default existed or the defaults were cured, the Master Lease

Agreements set forth the following procedures for the sale or abandonment of equipment: (1) Products Chief Financial Officer is required to certify that the equipment has become economically obsolete or is surplus to Products needs; (2) the Debtors are required to give GECC the opportunity to retain the equipment; (3) if GECC does not elect to retain the equipment, the Debtors would be required to auction the equipment and sell it to the highest bidder; (4) any funds received for the equipment are required to be paid directly to GECC 3
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without deduction, set-off or adjustment; and (5) Products is required to pay any amount due as of the date of the sale of the equipment, plus any costs with respect to the sale of the equipment and the excess, if any, of the Stipulated Loss Value (as defined in the Master Lease Agreements) over the net proceeds actually realized by a sale. Defaults currently exist and, even if those defaults were cured, GECC is not willing to deviate from the contractually agreed upon procedures that the Debtors themselves found acceptable when they entered into the Master Lease Agreements. 10. The Master Lease Agreements are presumed to be true leases until the Debtors

prove otherwise. See In re Uni-Rty Corp., No. 96-4573, 1998 U.S. Dist. LEXIS 8426, at *10 (S.D.N.Y. June 9, 1998), affd, No. 98-5032, 1999 U.S. App. LEXIS 5731, at *5 (2d Cir. Mar. 26, 1999); In re Owen, 221 B.R. 56, 60 (Bankr. N.D.N.Y. 1998) (The Debtors have the burden of demonstrating that the transaction was other than what it purports to be in the agreement.). Pursuant to Section 365(d)(5) of the Bankruptcy Code2, the Debtors are required to timely perform their obligations under the Master Lease Agreements. 11. The Debtors have yet to prove that the Master Lease Agreements are not true

leases.3 The Master Lease Agreements are presumed to be true leases and the Debtors must comply with the contractually agreed upon sale and/or abandonment procedures contained in the Master Lease Agreements until the agreements are found to be otherwise. Thus, GECC objects

Prior to the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, the relevant section was section 365(d)(10) of the Bankruptcy Code. The Debtors waited almost a year after they filed for bankruptcy protection to commence the Products Adversary Proceeding. During that time the Debtors continued to use GECCs equipment, but stopped making payments required by the Master Lease Agreements. Any cost of such delay must be borne by the Debtors. 4

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to the Motion to the extent that it seeks to modify the procedures for the sale and/or abandonment of equipment under the Master Lease Agreements.4 Conclusion For the foregoing reasons, GECC respectfully requests that the Court (i) deny the Motion to the extent the Motion seeks to modify the procedures for the sale and/or abandonment of equipment under the Master Lease Agreements and (ii) further and alternatively, grant such other relief as the Court deems just and proper. July 10, 2006 /s/ Erin L. Toomey__________________________ Judy A. ONeill (P32142) Erin L. Toomey (P67691) FOLEY & LARDNER LLP 500 Woodward Ave., Suite 2700 Detroit, Michigan 48226-3489 Telephone: (313) 234-7100 Facsimile: (313) 234-2800 etoomey@foley.com -and-

The Debtors are also seeking to amend their DIP Agreement to permit the Debtors to utilize the proceeds from the sale of certain equipment, including the equipment leased from GECC under the Master Lease Agreements. As acknowledged in the Motion, if the Court grants the Motion, the Debtors have agreed to segregate the proceeds received from the sale of equipment leased pursuant to the Master Lease Agreements. To the extent that the Fourth Amendment to the DIP Agreement does not provide for the proceeds from the sale of any equipment leased from GECC pursuant to the Master Lease Agreements to be segregated from the proceeds used for prepayments on the DIP financing or for use by the Debtors, as provided for in paragraph 7(a) of the Final DIP Order dated July 28, 2005, GECC objects to the Fourth Amendment to the DIP. 5

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David S. Heller Josef S. Athanas LATHAM & WATKINS LLP 233 South Wacker Drive Sears Tower, Suite 5800 Chicago, Illinois 60606 Telephone: (312) 876-7700 Facsimile: (312) 993-9767

ATTORNEYS FOR GENERAL ELECTRIC CAPITAL CORPORATION

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