July 9 (Bloomberg) -- Lear Corp., which filed for bankruptcy in the U.S. on July 7, was prohibited by a judge from tapping its Canadian plants for cash.

Lear, the world’s second-largest maker of automobile seats, owed its Canadian units about $82 million as of May 31, according to a report from the accounting firm RSM Richter, which was appointed information officer by the judge.

Lear’s Canadian operations “shall not make advances or transfers of funds to any of the applicants or any of their affiliates by way of loan or otherwise,” Ontario Superior Court Judge Sarah Pepall said in an order issued today that recognizes the U.S. bankruptcy proceedings. She made an exception for payments due in the ordinary course of business.

Lear, based in Southfield, Michigan, was hurt by declining demand from customers including bankrupt General Motors Corp. as well as volatile energy and raw material prices. The company said that it had total debt of $4.5 billion and assets of $1.3 billion in its petition filed with the U.S. Bankruptcy Court in New York.

Lear, with 2008 net sales of $13.6 billion, makes parts for the daily assembly of about 12,000 vehicles in the U.S. and about 30,000 elsewhere in the world. It reported a net loss of $689.9 million last year.

Canadian Sales

Edmond Lamek, an insolvency lawyer at Fasken Martineau who represents Richter, said the accounting firm will be vigilant in ensuring that Canadian plants don’t send finished products to the U.S. without being paid for them.

“If we see Canadian sales spiking to the U.S. and money isn’t coming back, we’ll be back to you,” Lamek told the judge. He said after the hearing the move was being made to protect Canadian creditors.

Lear has four plants in Ontario and employs about 1,720 people in Canada. The Canadian company will begin negotiations with the Canadian Auto Workers union next week on reopening its plant in Ajax, Ontario, near Toronto, Lear’s Canadian lawyer Kevin McElcheran told the judge. The company hopes to supply Chrysler LLC’s 300 models with seats from the Ajax plant, he said.

Lear said in the U.S. that it agreed on a reorganization plan with holders of 66 percent of its secured bank debt and 50 percent of the $1.29 billion in unsecured notes. Under the terms of the deal, the lenders would receive a portion of $600 million of new loans, $500 million of preferred stock convertible into 26 percent of the company’s new shares and another 26 percent of the common stock of reorganized Lear.

Stock for Bondholders

Holders of unsecured bonds would get 46 percent of the new Lear shares and warrants to buy another 15 percent, according to a regulatory filing. Lear expects to pay its suppliers’ unsecured claims in full in cash. Existing stockholders won’t receive any recovery, the company said.

Lear also is seeking approval of a $500 million debtor-in- possession, or DIP, loan from a group led by JPMorgan Chase & Co. and Citigroup Inc. that can be rolled into an exit loan when the company emerges from Chapter 11. A hearing on final approval of that financing is scheduled for July 30.

Under that arrangement, Lear will pay a 5 percent up-front fee to the DIP lenders. Lear will pay additional fees and issue warrants to the lenders based on the amount that’s converted into an exit loan, court papers said.

The U.S. case is Lear Corp., 09-14326, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The Canadian case is In the Matter of Lear Canada, Ontario Superior Court of Justice (Toronto).

To contact the reporter on this story: Joe Schneider in Toronto at jschneider5@bloomberg.net.

Last Updated: July 9, 2009 15:52 EDT