As Debate over Amendment of Bankruptcy Rule 2019 Continues, Delaware Bankruptcy Court Finds that Current Rule 2019(a) Mandates Disclosure of Economic Interests of “Loose Affiliation” of Washington Mutual Creditors

Following a run on Washington Mutual Bank (WaMu), WaMu was seized by the Office of Thrift Supervision.  The Federal Deposit Insurance Company, acting as receiver, sold “substantially all” of WaMu’s assets to JPMorgan Chase, Inc. (JPMC).  Simultaneously, WaMu’s holding company, Washington Mutual, Inc. (WMI), filed for bankruptcy protection.  As we have previously reported, certain entities, including several hedge fund managers, that held WMI debt (WMI Noteholders Group) intervened in the WMI bankruptcy proceeding to argue for a narrow construction of what assets had actually been sold to JPMC (which would have the effect of increasing the value of the WMI bankruptcy estate and, by extension, the value of the WMI Noteholders Group interests in WMI).  JPMC sought full disclosure of all information called for by Bankruptcy Rule 2019(a), not just the names of the members of the WMI Noteholders Group and the aggregate value of their interests.  Following the 2005 decision of the United States District Court for the Southern District of New York in In Re Northwest Airlines Corp., the court granted JPMC’s motion and ordered full compliance.  We discuss the court’s reasoning and the implications for investors in distressed debt.

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