Bankrupt auto supplier Visteon (OTC:VSTNQ) is facing opposition from shareholders regarding the proposed reorganization plan. A group of hedge funds that controls around 7 percent equity stake in the company have sent a letter to Visteon management, expressing the desire to discuss an alternative reorganization plan.

The funds have announced the formation of an ad hoc committee, and are pushing the board to reconsider the current plans in light of Visteon's improving performance, citing better than expected cash holdings, operating cash flow, and stock prices. “Given current trading prices of the company's debt and equity securities, which have increased sharply since 26th February, it appears that our clients are not the only ones who view your proposed disclosure statement's bearish financial projections used to justify a low valuation of the company with an understandable dose of skepticism,” the committee said in a letter to the board, posted earlier this week. “As such, there is no meritorious basis for the company to exclude its shareholders from significant distributions under a revised Chapter 11 plan.” The committee consists of funds associated with Davidson Kempner Partners, Plainfield Asset Management, and Brigade Capital Management, all of which paid a combined US$4.77 million for 9.5 million shares of Visteon stock.

Visteon’s fortunes are very different from its former parent Ford Motor Company (NYSE:F). While Ford has registered impressive growth in recent past, Visteon is still struggling with the bankruptcy proceedings. The auto parts supplier declared bankruptcy in May 2009, and has remained very aggressive in restructuring of its business over the last nine months. Visteon has offloaded non core businesses and closed plants. With the improvement in North American automotive market, Visteon's cash holdings and operating cash flow has also improved exceeding analyst expectation.

According to the present reorganization plan, Visteon will distribute almost all of the company's equity and new secured debts among the secured lenders. Unsecured creditors and shareholders, other than government agencies that guarantee pensions, will not be given any share in the equity

The news of a big group of shareholders not agreeing for the restructuring plan isn’t good news for Visteon. The stock is trading down more than 9 percent on the news.