May 21 (Bloomberg) -- Delphi Corp., its lenders, General Motors Corp. and the U.S. Treasury Department’s auto task force were ordered by the judge overseeing the auto-parts maker’s bankruptcy case to try to resolve their disputes in mediation.

“While the court is satisfied that the referred parties are conducting themselves in good faith regarding the subject matters referred to the mediator,” U.S. Bankruptcy Judge Robert D. Drain in New York said in an order yesterday, “the court concludes that mediation may contribute to a consensual resolution of these Chapter 11 cases.”

Delphi lawyer John Butler Jr. said at a hearing today in New York that the mediation process has begun and negotiations are planned over the holiday weekend with a focus on a May 29 hearing before Drain on Delphi’s agreements with GM.

Delphi likely won’t meet today’s deadline to negotiate the terms of an agreement with former parent GM to help it emerge from bankruptcy. Butler said the May 29 hearing will be the cutoff.

The company reached a deal with lenders this month for a third extension of its bankruptcy loan, which Drain gave final approval to today, to accommodate the talks. The auto-parts maker has been negotiating with its lenders, creditors, GM and the Treasury’s auto task force on GM’s role in Delphi’s reorganization plan.

Still Deciding

The Treasury has said it needed more time to decide whether to allow Detroit-based GM to provide $150 million in funding to its former parts-making unit.

GM got $13.4 billion in loans from the Treasury to forestall its own bankruptcy, and the government has said it has the right to block GM from contributing further to Troy, Michigan-based Delphi. GM said last month it proposed a deal that would allow for rapid resolution of Delphi’s bankruptcy, which was rejected by Delphi’s lenders.

Drain also approved Delphi’s sale of its remaining suspension and brake businesses for $90 million to BeijingWest Industries Co. About $30 million of that total is allocated to Delphi units that are in bankruptcy. No other bidders challenges BeijingWest’s offer, so Delphi didn’t hold an auction, Butler said. The deal is expected to close before year end.

The case is In re Delphi Corp., 05-44481, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Edvard Pettersson in Los Angeles at epettersson@bloomberg.net; Christopher Scinta in New York at cscinta@bloomberg.net.

Last Updated: May 21, 2009 11:23 EDT