Former judge to investigate ResCap bankruptcy

Wed Jul 4, 2012 1:42am IST

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(Reuters) - Arthur Gonzalez, the former chief bankruptcy judge in Manhattan, was named the independent examiner to investigate details of the bankruptcy of home lender Residential Capital LLC, according to a court filing made on Tuesday.

Berkshire Hathaway (BRKa.N), which is seeking to buy two of ResCap's loan businesses, asked the Manhattan Federal bankruptcy court in June to appoint an examiner to look into pre-bankruptcy financial transactions between ResCap and its parent company, Ally Financial GKM.N. Berkshire had said the transactions were "potentially improper" and wanted an examiner to evaluate them.

ResCap objected to the examiner proposal, but U.S. Bankruptcy Court Judge Martin Glenn approved Berkshire's request at a June hearing. Susan Fitzpatrick, a spokeswoman for ResCap, said by e-mail on Tuesday that ResCap looks forward to working with Gonzalez. A spokeswoman for Ally Financial declined to comment.

ResCap filed for bankruptcy in May in Manhattan with a plan to sell two groups of assets for about $4 billion to two separate buyers, Nationstar Mortgage Holdings (NSM.N) and Ally. After Warren Buffett's Berkshire stepped forward as an interested buyer for both businesses, it replaced Ally as the low bidder, or "stalking horse", in an auction of the mortgage loans.

ResCap's auctions for the mortgage servicing business and mortgage loan portfolio are due to take place by mid-October.

Gonzalez, who is a professor of bankruptcy law at the New York University School of Law, retired as Chief Judge of the Bankruptcy Court in Manhattan in March. He had been a judge in that court since 1995, overseeing some of the largest U.S. bankruptcies including Enron, WorldCom and Chrysler. He held the top spot since 2010.

Before becoming a judge, he was a United States Trustee, an employee of the U.S. Justice Department who oversees the bankruptcy process.

The judge will set the timeframe, scope and budget for the examination. Bankruptcy examiners have been named in many other bankruptcy cases including Dynegy Holdings, the bankrupt unit of Dynegy Inc., and Lehman Brothers Holdings.

These examiner investigations can delay the bankrupt company's reorganization. For instance, in Dynegy, the company had to renegotiate its plan to get out of bankruptcy with creditors when the examiner found a pre-bankruptcy transfer of assets was improper.

(Additional reporting by Rick Rothacker; Reporting by Caroline Humer; editing by Carol Bishopric and Sofina Mirza-Reid)

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