Bankrupt hedge fund Weiss Multi-Strategy Advisers LLC and its top creditor, Jefferies Financial Group, are in discussions to potentially settle their ongoing litigation, which stems from the collapse of George Weiss’s eponymous hedge fund, according to a report by Bloomberg.

The report cites a Weiss attorney as disclosing in a bankruptcy court filing on Wednesday that the two parties are negotiating a settlement that could resolve a lawsuit alleging Jefferies and its affiliate, Leucadia Asset Management, used litigation threats against Weiss employees to unfairly extract $20m from the firm before it filed for bankruptcy.

The lawsuit is part of a broader dispute between the companies. Jefferies is seeking to recover approximately $30m in bonuses paid to Weiss employees pre-bankruptcy and has also sued George Weiss, claiming he personally guaranteed over $100m in debt owed by his firm. Weiss denies this claim, alleging that Jefferies threatened to damage his reputation in the financial industry – a claim Jefferies refutes.

Weiss’s attorney, John Jureller Jr, informed Judge Martin Glenn, who is overseeing the case, that both parties are actively working towards a resolution. “A settlement offer has been discussed and is currently being considered,” Jureller wrote, adding that while no agreement has been reached, both sides are committed to continuing discussions in good faith.

The settlement update comes after Judge Glenn encouraged mediation during an 1 October hearing, noting that a consensual resolution would benefit both sophisticated parties.