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Richmond, Va. -- Circuit City and a group of its largest creditors are headed to mediation to resolve disputes over a final plan that will lay out how creditors will get paid.

U.S. Bankruptcy Judge Kevin R. Huennekens ordered both sides to take their disagreements to a court-appointed mediator and to report back to him on the progress by July 22.

"I'm disappointed [the two sides] were not able to resolve this" without mediation, Huennekens said.

Lawyers for the defunct Henrico County-based retailer and the creditors committee said that an all-out effort to reach a compromise had fallen short and they needed outside help.

At issue are details in the bylaws and makeup of a committee that will oversee a liquidating trust set up to hand out any remaining funds from the sale of the company's assets.

The liquidation plan, which spells out how creditors are paid, was filed in November. A hearing on approving that plan has been put off several times since then because of various issues, including an outstanding tax matter related to the sale of Circuit City's Canadian division.

As the company worked to settle the various issues, the creditors committee and Circuit City continued to work out details of the liquidation plan. Frustrated by the lack of progress, the creditors' committee filed its own plan this month.

Circuit City filed for Chapter 11 bankruptcy protection in November 2008. The retailer was forced out of business when it was unable to find a buyer interested in keeping the company afloat. It closed its final store in March 2009. In all, about 34,000 people lost their jobs when the company folded.

Earlier this month, both sides had asked for mediation. But at a hearing two weeks ago, the company and creditors asked the judge for more time as negotiations progressed.

Huennekens last week gave the parties a second extension -- until yesterday -- to reach a deal or he would order them to work with a mediator to settle disputes.

"We have run out of time," said Gregg M. Galardi, Circuit City's lead attorney, said yesterday at a hearing at the federal courthouse in downtown Richmond. "We are still very close, but we're not there."

Robert J. Feinstein, an attorney for the committee of creditors, agrees, saying the parties worked until the "wee hours of the night" trying to reach a compromise. "We just have differences," he said.

The mediation should begin in the next couple of weeks. Huennekens told the parties to make sure "the decision makers" attend.

If mediation doesn't work, the competing plans would be considered by the judge.


Contact Louis Llovio at (804) 649-6348 or LLLovio@timesdispatch.com.