Since the beginning of RadioShack’s bankruptcy proceedings back in February, the lower-ranking or “junior” lenders in the company’s debt pile have claimed that the entire proceedings were full of shenanigans. As the proceedings wind down and lenders and lawyers sort out the final disposition of everything, everyone at least agrees on one thing: the bankruptcy will not convert from a Chapter 11 to a Chapter 7 to save money on lawyers.

Salus Capital, a hedge fund that lent RadioShack $150 million, has been the most vocal critic of the bankruptcy proceedings, criticizing the sale of a number of stores to fellow lender Standard General using debt as currency instead of raising cash, and asking that the bankruptcy be changed to a Chapter 7 proceeding to save money on legal fees.

Their concerns about legal fees are valid: so far, the bankruptcy has cost an estimated $45 million, or almost as much as the company made from selling all of its property in three states. However, the lenders and lawyers representing the smoldering remains of RadioShack have come to an agreement, and the bankruptcy will continue as a Chapter 11.

From the sale of 1,700 stores in exchange for debt to proceedings dragging on in Chapter 11 even though the company will go out of business, some lenders claim and not designed to extract as much money for creditors as possible from the remains of the company.

RadioShack owes an estimated $600 million to everyone from the hedge funds that made controversial loans in its final years to suppliers to local mall landlords to people with gift cards shoved in a junk drawer. While the company had thousands of stores full of merchandise, even the sale of leases and cases of batteries is not enough to cover those debts.

There’s one asset belonging to the former RadioShack (now officially renamed “RS Legacy Corporation”) that will have to be distributed to lenders: payouts from insurance and lawsuits over the failure of the company and its management. However, even though these claims will take more time, the final settlement will determine which lenders get a share of money the former RadioShack gets.

Former RadioShack, Creditors Move Toward Broad Resolution [Wall Street Journal]

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