(Reuters) - Michigan's attorney general is objecting to bankrupt A123 Systems Inc's plan on how to pay back its creditors, saying it calls for the improper transfer of $125 million in tax credits provided by the state.
The objection represents the latest wrinkle in a difficult and politically charged Chapter 11 bankruptcy process for A123, the lithium-ion car battery maker that got $249 million in federal grants.
Michigan Attorney General Bill Schuette filed his objection on Wednesday in U.S. Bankruptcy Court in Delaware, reiterating concerns he first raised in November over the proposed credit transfer.
The company is seeking to shift $125.3 million in Michigan tax credits to the U.S. unit of Wanxiang Group, China's largest auto parts maker, which acquired Waltham, Massachusetts-based A123 in January.
Michigan had provided the credits in 2009 as incentives for A123 to construct facilities in the state and create jobs for Michigan residents.
Schuette said the law that provided for the credits has been repealed and that Wanxiang itself would need to have entered into an agreement with Michigan to be eligible for the credits.
A123's proposed payout plan would reimburse unsecured creditors for about 65 percent of their claims.
A lawyer for A123 did not immediately respond to a request for comment on Thursday.
The company's October bankruptcy placed it firmly in the limelight, coming during the heart of a U.S. presidential election in which government spending was a key talking point.
Republican Mitt Romney, who eventually lost to President Barack Obama, at the time characterized the bankruptcy as evidence that his opponent was "gambling away billions of taxpayer dollars."
The U.S. Department of Energy allotted about $90 billion for various clean-energy programs through the administration's stimulus package. Of that, at least $813 million went to energy companies that eventually filed for bankruptcy, including the grant to A123 and a loan to solar panel maker Solyndra.
A123 made headlines again in January, when its $260 million deal to sell itself to Wanxiang's U.S. unit was met with warnings from some lawmakers that the deal would transfer sensitive technology developed with U.S. government money.
The U.S. government approved the deal on January 28.
The case is A123 Systems Inc, U.S. Bankruptcy Court, District of Delaware, No. 12-12859.
(Reporting By Nick Brown; Editing by Leslie Adler)