(Updates with excerpt from filing in third paragraph.)
Oct. 4 (Bloomberg) -- Washington Mutual Inc., former owner of the biggest U.S. bank to fail, will try to limit the scope of court-ordered mediation by changing its reorganization plan to appease a bankruptcy judge.
The proposed changes would help speed WaMu’s exit from Chapter 11 by avoiding a new vote of creditors, according to a filing in U.S. Bankruptcy Court in Wilmington, Delaware. Mediation should focus only on allegations of insider trading that shareholders made against four hedge funds, WaMu said.
“There is absolutely no reason confirmation should be hijacked,” WaMu said in its filing. Waiting for a broad range of issues to be resolved in mediation would take about six months and cost about $180 million, WaMu said.
Last month, U.S. Bankruptcy Judge Mary Walrath for a second time rejected WaMu’s plan to pay creditors more than $7 billion. Some WaMu noteholders, including the hedge funds, would get a higher interest rate than is legally permitted, she said.
Walrath also allowed shareholders, including those who would get nothing under the plan, to try to prove allegations of insider trading. She ordered the groups into mediation, saying they should try to settle any disputes that may prevent WaMu from ending its bankruptcy.
WaMu argued in its filing that issues other than the insider-trading claims don’t need to mediated because the company has agreed to change the interest rate some creditors will receive and to adjust other parts of the plan Walrath criticized in her Sept. 14 opinion.
The Seattle-based company didn’t say when it would seek to end its three-year-old bankruptcy. The proposed changes use an Oct. 31 exit date for the purposes of estimating creditor recoveries.
WaMu filed for bankruptcy on Sept. 26, 2008, the day after its banking unit was taken over by regulators and sold to JPMorgan Chase & Co. for $1.9 billion. Washington Mutual Bank had more than 2,200 branches and $188 billion in deposits.
The case is In re Washington Mutual Inc., 08-12229, U.S. Bankruptcy Court, District of Delaware (Wilmington).
--Editors: Stephen Farr, Andrew Dunn
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