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In re Washington Mutual, Inc.

442 B.R. 314 (2011)

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In re Washington Mutual, Inc.

United States Bankruptcy Court for the District of Delaware
442 B.R. 314 (2011)

Facts

Washington Mutual, Inc. (WMI) (debtor) owned Washington Mutual Bank (WMB). A credit crisis caused ratings agencies to severely downgrade WMI and WMB. This, in turn, caused a bank run and led to government receivership of WMB. WMI and a related company, WMI Investment Corp. (debtor), filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code. As part of the proposed plan, claimants who held at least $2 million in instruments known as trust-preferred income-equity redeemable securities (PIERS) were extended a rights offering. The offering allowed eligible PIERS claimants to purchase new stock in a reorganized WMI subsidiary, which could be either publicly traded or privately held. Nate Thoma, a PIERS holder whose claim fell below $2 million, objected to the rights offering. Thoma argued that the offering constituted unequal treatment of claims within a particular class in violation of Bankruptcy Code § 1123(a)(4). The plan supporters countered that there could be no discriminatory treatment because the offering was of no value. The plan supporters also argued that minimizing administrative costs was the rationale for limiting the offering to larger claimants.

Rule of Law

Issue

Holding and Reasoning (Walrath, J.)

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