January 28, 2010 / 11:06 PM / in 9 years

UPDATE 1-WaMu shareholders get their voice in bankruptcy

* Shareholders to get unified role in bankruptcy

* Culminates year-long campaign by shareholders (Adds details throughout)

By Tom Hals

WILMINGTON, Del, Jan 28 (Reuters) - Shareholders of Washington Mutual Inc WAMUQ.PK will have an voice in the company’s bankruptcy after a judge refused on Thursday to disband their committee, which Washington Mutual said would complicate the case.

The U.S. Trustee, which plays an oversight role in bankruptcy, appointed the committee earlier in January after being petitioned by 3,500 shareholders. The company immediately asked the court to disband it.

The committee will be able to speak with a unified voice and hire professionals, which would be paid by the company.

Washington Mutual has said since it filed for bankruptcy in 2008 that it is hopelessly insolvent, the legal benchmark for recognizing official committees of shareholders.

“Evidence that debt and equity are still trading at any number establishes that at least the market thinks the debt is not hopelessly insolvent,” said Judge Mary Walrath.

She also denied a request to cap the committee’s expenses at $250,000.

Much of the value of the company depends on the outcome of various legal disputes surrounding the government’s seizure of the company’s banking operations during the height of the financial crisis in 2008.

Brian Rosen of Weil, Gotshal & Manges, which represents Washington Mutual, said there was little need for an equity committee before settling outstanding lawsuits. “That’s when the equity committee should come into being because that’s when they will become unhappy as we settle at a number they may think is inappropriate.”

Gregory Cross of Venable, which represents the equity committee, pointed out that the additional cost for the equity committee would be minimal for the company, which already pays for the work of 19 sets of professionals. “But one more is the straw that breaks the camels back?”

The hearing attracted an overflow crowd, drawing shareholders who have organized themselves over the past year through message boards and websites.

“There’s no settlement or outcome that will have validity for the people in this courtroom or the 3,500 who wrote to the Trustee without a committee,” said Cross.

The case is In re Washington Mutual Inc, U.S. Bankruptcy Court, District of Delaware, No. 08-12229. (Reporting by Tom Hals)

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