Bankruptcy Judge Mary F. Walrath ruled that Washington Mutual shareholders are not automatically barred by bankruptcy law from suing to try to force the company to hold the meeting. The shareholders want to hold an annual meeting so they can replace the board of directors of Washington Mutual which filed bankruptcy in 2008 after being seized by regulators and sold to JPMorgan for $1.9 billion.
Shareholders have been “denied a chance to put their chosen representatives on the board,” shareholder attorney Stephen D. Susman said today in court.
Washington Mutual announced in March 2010 that it was beginning it final push to end the Chapter 11 bankruptcy by settling a 19 month court battle with the FDIC and JP Morgan Chase & Company. However, Washington Mutual shareholders are against the settlement because they would get nothing when WaMu liquidates it remaining assets. The settlement involves ownership of $4 billion in deposits currently held by JPMorgan and how to divided two tax refunds expected to be worth about $5.6 billion.
Bankruptcy Judge Walrath’s decision could drastically change the experience of large corporations filing Chapter 11 bankruptcy. The ability to change the board of directors during bankruptcy could potentially give shareholders a lot more leverage to negotiate better settlements during Chapter 11 bankruptcy. If the shareholders successfully sue and are granted the right to hold their annual meeting, WaMu could be forced to renegotiate their settlement and include the shareholders in on the deal. A matter of fact, Walrath’s decision alone may be enough to force WaMu to reconsider its position and come up with some type of concessions for the shareholders.