Among the several issues addressed in the Sept. 13 opinion of the U.S. Bankruptcy Court for the District of Delaware in In re Washington Mutual Inc.1 (WaMu), the distressed investment and restructuring community has been focused on the holding that the participation of certain noteholders (the “settlement noteholders”) in plan-related settlement negotiations and subsequent trading activity gave rise to colorable claims that could be asserted against them.2 This ruling has cast uncertainty upon creditors’ ability to play a constructive role in achieving successful reorganization outcomes by way of consensual agreement. In light of the essential policy interest favoring settlements over protracted litigation, the framework set forth in WaMu may have the regrettable effect of chilling creditor participation in negotiations that would otherwise serve to benefit all stakeholders.

Factual Background

Early in the WaMu case, the FDIC, the debtors, their creditors (including the settlement noteholders), and the purchaser of much of WaMu’s banking assets were in the midst of litigation over the ownership of billions of dollars of assets. After negotiations that took place between March 2009 and March 2010, the parties agreed on a global settlement, which was central to the completion of the debtors’ plan of reorganization.

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