Next Week in Bankruptcy

On Tuesday in Manhattan, the trustee unwinding Lehman Brothers Inc. will ask a bankruptcy judge for permission to pay nearly $2 billion to the defunct brokerage’s unsecured creditors, which would be the third such distribution since he paid off the brokerage’s customers.

If approved by Judge Shelley Chapman, that would bring the total amount returned to creditors to more than $8 billion, a recovery of about 35 cents on the dollar. Combined with distributions made to customers, the total amount recovered in the brokerage’s liquidation would be about $114 billion.

In court papers, lawyers for trustee James W. Giddens said that after the third distribution, further payouts would be contingent on winning or settling pending litigation, which would free up funds currently on reserve.

Mr. Giddens began paying back creditors—former employees, pension funds, banks and investment firms with unsecured claims against the brokerage—last summer after paying back the brokerage’s customers.

The distinction between “customer” and “creditor” is a crucial one in the Lehman case. Customers get 100% of their money back, while unsecured creditors get much less.

Also Tuesday, a federal judge in Chicago will hear Caesars Entertainment Operating Co.’s latest bid for a quick appeal of a recent decision that creditor lawsuits can continue against the casino giant’s parent, Caesars Entertainment Corp.

U.S. District Court Judge Robert Gettleman granted the request for a hearing three days after a bankruptcy judge refused to allow the subsidiary to bypass the district court and make a quick and direct appeal to an appeals court.

The suits by creditors involve asset transfers between the two companies before CEOC’s bankruptcy filing.

In making the bid for a quick appeal, CEOC said that with cases against its parent “barreling” ahead, the U.S. District Court should quickly hear the appeal to reverse a bankruptcy court decision that relied on precedent that “is not the law.”

If the suits aren’t halted, CEOC said its parent would be put “in substantial risk of itself filing for bankruptcy.” The litigation could put the parent, which isn’t in bankruptcy, on the hook for hundreds of millions—or possibly billions—of dollars of CEOC’s debts.

On Wednesday, SkyMall LLC, the company behind the now-defunct in-flight catalog, will ask a bankruptcy judge in Phoenix for final approval of its liquidation plan.

The plan, which requires Judge Brenda Martin’s signature before it can fully take effect, spells out how the proceeds from the liquidation of SkyMall’s assets will be distributed to its creditors.

Under the plan, shareholders in SkyMall’s once publicly traded parent, Xhibit Corp., would see their shares canceled and wouldn’t receive any payment.

SkyMall’s debts include about $15.5 million in unsecured claims held by trade creditors, employees and others, but the company in unlikely to be able to return much to these creditors.

SkyMall’s plan to repay its debts is largely funded by the sale of the company’s trademark and online business to C&A Marketing for $1.9 million in April.

Chaim Pikarski, an owner and executive at C&A Marketing, said he plans to turn around the failed business, capitalizing on its widely recognized brand. That process, he said, may include reinstating the SkyMall catalog, beloved by many frequent fliers. SkyMall filed for chapter 11 protection in January.

- Joseph Checkler contributed to this article.

Write to Tom Corrigan at [email protected]