Washington Mutual Inc's effort to exit bankruptcy encountered a setback on Thursday when the judge in the case ordered the company to talk further with shareholders about their requests for documents.
The bank holding company had sought approval of its disclosure statement, which must be cleared by a bankruptcy court before it can be sent to those voting on the reorganization.
Bankruptcy Judge Mary Walrath declined to hear arguments on the hundreds of objections to the disclosure statement. Instead, she ordered lawyers for the company to discuss requests for information by attorneys for shareholders and bondholders and report back on June 17. She also postponed discussions of the disclosure statement until that time.
Shareholders want to investigate the collapse of Washington Mutual Bank in 2008, the biggest bank failure in U.S. history and the event that pushed the holding company into bankruptcy.
They also want to know more about a settlement of lawsuits among JPMorgan Chase & Co , Washington Mutual Inc and the Federal Deposit Insurance Corp that is central to the bank holding company's reorganization plan.
That settlement divides disputed assets and provides about $7 billion to distribute among creditors. Shareholders would receive nothing.
Shareholders want information on what legal claims are resolved by the settlement, how those claims were valued and if those valuations are fair. They have said they think the company's assets, including its legal claims, could be worth $20 billion.
Shareholders attorney Justin Nelson, of the firm Susman Godfrey, said Washington Mutual and others had turned over very little information, despite an order by Walrath for the company to turn over what it used to value the settlement.
Nelson held up a heavily redacted 238-page document from the FDIC, which he said was the only document the government agency turned over. It reads like a classified version of the Kennedy assassination.
Judge Walrath did not hide her frustration with attorneys for Washington Mutual, who defended their refusal to provide documents to shareholders.
Why should I not appoint an examiner which I will direct you will give everything? asked Walrath.
The company had arrived in court with a request to establish a discovery process that shareholders criticized as unfair and a constraint on their ability to obtain documents and question witnesses.
The U.S. trustee, a government officer who oversees bankruptcy cases, said he supported the appointment of an examiner to try to head off miring the process in protracted litigation.
The issue is not likely to go away. Shareholders attorney Nelson seized on the judge's comments and said he would submit a new request for the court to appoint an examiner.
In addition, shareholders have appealed Walrath's rejection of their earlier request for an examiner. On Thursday, Walrath allowed their appeal to go directly to the Court of Appeals for the Third Circuit, bypassing District Court.
Part of the reason for sending the appeal to the highest court short of the Supreme Court was to provide guidance on applying law regarding examiners, Walrath said. She also indicated she is unlikely to begin a confirmation hearing until the examiner is a settled matter.
That further muddies the timing for confirming the company's reorganization.
The company just last week pushed back its proposed start of confirmation hearings to August 2-4 from mid-July. Walrath asked the parties to discuss that timing as part of their talks on discovery, indicating it could slip later into the year.
Shares of Washington Mutual closed up 5 percent at 12.5 cents in pink sheet trading.
The case is In re Washington Mutual Inc, U.S. Bankruptcy Court, District of Delaware (Wilmington), No. 08-12229.
(Reporting by Tom Hals; Editing by Maureen Bavdek, Steve Orlofsky and Bernard Orr)