UPDATE 2-Judge blocks Platinum expense payout in Delphi deal

* Judge blocks payment of $30 mln in expenses to Platinum

* Delphi DIP lenders opposed potential payout

* Platinum could still seek some expense repayment later (Updates with Platinum statement, background details)

By Emily Chasan

NEW YORK, July 1 (Reuters) - A U.S. bankruptcy judge on Wednesday denied a request from auto supplier Delphi Corp DPHIQ.PK to pay private equity firm Platinum Equity up to $30 million in expense reimbursements if its bid for the company is topped.

At a U.S. Bankruptcy Court hearing in Manhattan, Judge Robert Drain said $30 million was "not reasonable or appropriate," but that his ruling would not preclude Platinum from seeking another kind of expense reimbursement later.

Delphi, which was spun off from General Motors Corp GMGMQ.PK in 1999 and filed for bankruptcy in 2005, said last month that it had reached a deal to sell most of its global operations to private equity firm Platinum Equity, in a plan that with the participation of GM would allow Delphi emerge from Chapter 11 bankruptcy protection.

But in early June Judge Drain ordered Delphi to allow other bidders to compete with Platinum's offer at an auction to be held in late July. That offer included a $3.6 billion financing package for Delphi that would come from various sources including GM and Platinum, people familiar with the matter have told Reuters.

Delphi argued in court that because of the new auction process it needed to offer the expense reimbursement to compensate Platinum for its efforts if Platinum does not make the winning bid.

But Delphi's debtor-in-possession lenders, who have provided the company with billions of dollars in financing and have considered bidding for it, opposed the request.

In a bankruptcy auction, break up fees and expense reimbursements are often given to the lead bidder for the company to help secure the status of the offer prior to the auction, but Delphi's DIP lenders said that was not needed since Platinum had already signed an agreement without such bid protections.

The DIP lenders also argued that the $30 million sum sought stemmed from work done as much as three years earlier, though the Platinum offer for Delphi had been negotiated in just the last several months.

Judge Drain also said he believed that Delphi would need the consent of its DIP lenders to make such a payout to Platinum.

Platinum said in a statement that they felt Judge Drain urged all the parties in the case to go back to the drawing board and work out some agreement on breakup fees and expense reimbursements.

"From our perspective, such overbid protection is an important but ultimately secondary consideration," Platinum spokesman Mark Barnhill said in a statement. "Our primary focus is on completing this process with the highest and best offer. We are the only bidder with a comprehensive, credible and well-capitalized plan to bring Delphi out of bankruptcy as a viable business going forward."

The case is In re: Delphi Corp, U.S. Bankruptcy Court, Southern District of New York, No. 05-44481. (Reporting by Emily Chasan, editing by Leslie Gevirtz, Bernard Orr)