WFC Wells Fargo and Company

The former RadioShack won final court approval of its chapter 11 plan Wednesday after brokering key settlements with lenders that paved the way for the former electronics retailer to secure a judge's signature on the proposal.

Following a hearing at the U.S. Bankruptcy Court in Wilmington, Del., Judge Brendan Shannon said he would sign off on both the settlements and the chapter 11 plan, which distributes proceeds from the company's liquidation to its creditors.

"This has been a very challenging case," he said. "There were issues that could have derailed the case, frankly, any number of times."

Burdened with more than $1 billion in debt, RadioShack filed for bankruptcy protection in February and shut down or sold off almost all of its 4,000-store chain. The company, which helped usher in the era of consumer electronics, had suffered a long decline brought on by the advent of digital technology as well as competition from newer, online electronics retailers.

Under its chapter 11 plan, the corporate remains of what was once RadioShack will pay most secured lenders in full but will leave little behind for lower-ranking creditors.

Until settlements were reached last week, a series of legal battles had clouded the former RadioShack's plans to complete its chapter 11 plan. During a two-day court hearing earlier this month, the case became mired in a clash with two of the former RadioShack's top-ranking lenders: Manhattan hedge fund Standard General LP and Wells Fargo & Co.

Standard General and Wells Fargo had argued the former RadioShack was obligated to cover hefty legal fees stemming from the lawsuit brought by junior creditors, which threatened to eat into remaining funds and cause other creditor-repayment plans to collapse.

The total bill for the litigation could have reached $15 million to $20 million, according to Standard General, which bought RadioShack's brand and saved about 1,700 stores from liquidation earlier this year.

But junior creditors agreed to drop the lawsuit against the lenders, clearing the way for the defunct electronics chain to move forward and begin repaying its debts. In exchange, Standard General, Wells Fargo and others will contribute as much as $9.4 million in cash and savings to a liquidation trust created by the plan.

Standard General will also waive its rights to $30 million in unsecured bonds.

"We are very pleased to have resolved the estate's litigation with both Standard General and Wells Fargo," Susheel Kirpalani, a lawyer representing unsecured creditors, said Wednesday.

The settlement, the product of extensive negotiations according to lawyers at Wednesday's hearing, will lay to rest most other litigation between the former RadioShack, Standard General and Wells Fargo. Junior creditors, however, are still pursuing litigation against RadioShack's directors for alleged breaches of their fiduciary duty. Proceeds from that and other litigation could add to their recovery.

The former RadioShack managed to find solutions to many other objections to its chapter 11 plan as well as to a dispute over a $72 million tax bill, though the tax deal is still subject to a potentially lengthy government-approval process.

Gregory Gordon, a lawyer for the former RadioShack, said that protracted litigation over those issues could have lasted years and left the company, already short on cash, and its creditors with nothing.

Peg Brickley contributed to this article.

Write to Tom Corrigan at tom.corrigan@wsj.com

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(END) Dow Jones Newswires

September 30, 2015 15:45 ET (19:45 GMT)

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