Washington Mutual Inc. is scrapping a proposed bankruptcy reorganization plan after negotiations to resolve shareholders' objections failed.
An attorney for Washington Mutual, who had asked a Delaware bankruptcy judge last week for more time to reach an agreement with shareholders, confirmed Thursday that the attempt had failed.
On Thursday, the equity committee, which objects to the current reorganization plan, asked for an emergency hearing next week on its motion to compel Aurelius Capital Management, one of the hedge funds supporting Washington Mutual's plan, to produce documents.
The committee this week also served new deposition notices on three other hedge funds that support the plan.
Washington Mutual's current reorganization will be subject to a confirmation hearing starting July 5.
Washington Mutual filed for Chapter 11 protection in 2008 after the federal government seized its flagship bank, based in Seattle, and sold its assets to JPMorgan Chase for $1.9 billion in the largest bank failure in U.S. history.
Washington Mutual's reorganization plan is based on a legal settlement of lawsuits pitting Washington Mutual, the Federal Deposit Insurance Corp. and JPMorgan against one another.
U.S. Bankruptcy Judge Mary Walrath ruled in January that the proposed settlement was fair and reasonable, but shareholders have challenged that ruling in federal district court, saying Washington Mutual presented no legal analysis of the claims being settled.
Under the proposed legal settlement, the competing lawsuits would be dismissed and some $10 billion in disputed assets would be distributed among Washington Mutual, JPMorgan and the FDIC.