Monday, June 13, 2011
Bankruptcy creditor objections: "Hipster Battles Funds"
A bankruptcy court reorganization approval has some similarities to a class action settlement fairness hearing, as the court engages in an equitable inquiry to determine whether unrepresented parties are being fairly treated by a proposal. And, as we know from the fairness hearing context, courts often disregard the concerns of lay parties who can't afford to retain attorneys to protect them. So Nate Thoma faced long odds when he filed a pro se objection to the reorganization proposal of bankrupt Washington Mutual, complaining about a structure that failed to treat similarly-situated creditors equally and "gerrymandering" by favored bondholders to buy up a smaller-valued class of securities that would be frozen out to create the artificial appearance of an impaired class favoring the reorganization. Three cheers to him for winning. [WSJ (h/t L.O.); Thoma objection; In re Washington Mutual, Inc., 442 BR 314 (Bankr. D. Del. 2011)]