The Bankruptcy Docket & All Filings - Hearing on Tuesday in Delaware(Groklaw)

Well I have to admit the petition to the court form SCO management is quite a hoot. But, they have to run the store.

But, what really happens between now and Tuesday when the court gets to consider the motion by SCO to continue as usual?

Well, normally (and by default) the corporation is appointed as the trustee during bankruptcy. I know. I know. That is putting the fox in charge of the hen house. But, the fox has been running the hen house for some time now and doing a fine job save for putting the company into bankruptcy. But, judges have a sense of humor too.

Actually, if creditors do not complain that is what goes down. And in many situations that is just fine.

Enter a mad group of companies (IBM, Novell, Red Hat, AutoZone? and perhaps even DaimlerChrysler).

What do they have to say about all of this?

Well, we have to just wait and see what they have to say. Novell, IBM and Red Hat have a choice to say nothing at all, right? And in some situations that may very well take place.

I certainly do not speak for any of these parties so I am not one to tell them what they should do or for that matter what they will do. However.

Now is the time for IBM, Novell, Red Hat and anyone else who wants to speak up to petition the court to deny SCO motions to continue as normal and instead appoint a trustee that they can agree with rather than the current SCO management. In other words, IBM, Novell, Red Hat or all of them can petition the bankruptcy court to throw current SCO management out on their ear. Or, at least appoint a trustee in bankruptcy that will not eat the chickens.

So I can see Novell getting up and saying “these boys” owe us about $25 million and we already have a court decision saying “these boys” “converted” that money to pay their lawyers instead of us. And now they want authority to hire even more lawyers instead of paying us now. (This is point where the bankruptcy judge figures out this bankruptcy is in for some rough sailing.) But, then IBM lawyers get up to talk...

“These boys bad mouthed our company and even sued us while the kind folks from Novell hell the power now confirmed by a federal court to waive any legal actions toward us. '''They continued anyway and now we have counterclaims in the millions that need to be addressed.” And just then Red Hat lawyers pop up.

“Your honor, we too have been bad mouthed by these managers. And we have claims pending against them also in the millions.” We want someone in charge that we can trust.

So you can see the circus if Novell, IBM or Red Hat want to call it.

And you can bet that lawyers for those three firms are not sleeping much this weekend. They have to decide just what they will do, when they will do it and whether they will do it together (sort of) of just act independently.

Now, SCO filed for Chapter 11. However, do not be surprised if IBM, Novell or even Red Hat suggest to the court that Chapter 7 is much better suited to resolving these claims. And why is that you say?

The reason is simple. SCO is going to have to sell everything it has including its furniture to pay off these claims. What SCO has told the court its liabilities is nothing compared to representations that IBM, Novell and Red Hat can make. And those claims are as yet undecided.

So my guess is that the court will not put the fox (SCO) in charge. Novell, IBM and Red Hat if they choose to do so, can advise and recommend to the court a trustee who can replace current management and take the bankruptcy on. They may recommend the same trustee (if they consult on the issue) or they may advise the court separately and the court can pick and choose. Or, the court could take the next available trustee on its handy list and put that person in charge. But, due to the nature of the business, it would make sense to take the advice of IBM, Novell and Red Hat.

Now it is always possible that either of these companies may abstain and not submit a claim or desire to advise the court on a possible trustee.

But, the bankruptcy judge now runs the show. You get the protection of the federal courts but they run the show.

And, yes, sometimes the initial determination by the court is changed if current management is caught embezzling, converting or doing other evil things. I personally have had the pleasure or displeasure of auditing a business under receivership where the current management was embezzling money and siphoning it off to the owner rather than having it reported to the court. When any judge gets wind of that, the management gets tossed out on their ear. So do not be surprised to learn the current SCO management is tossed and “new management” in place come Tuesday. It is up to the bankruptcy judge.

But what about the current law suits with Novell, IBM and Red Hat? (Not to skip AutoZone?.)

Well, you may have noticed that the petition by SCO management made mention of the law suits with Novell, IBM and Red Hat, but no liabilities reflected those possible obligations. Novell, IBM and Red Hat do not need to claim a specific amount come Tuesday, however, they may advise the court of the general parameters and state that the actually damage amounts, etc., are best decided by the trial courts in which they are currently filed.

The bankruptcy judge does take control over those cases if he wants them. The bankruptcy judge can decide all claims and if a jury is necessary to be summoned, the bankruptcy court can do so.

However, I doubt that will occur.

My guess is that Novell, IBM and Red Hat will petition the bankruptcy court to remove the respective stays on the courts hearing those matters and have that court defer any collection matters to the bankruptcy court. In other words, it would be advisable for Judge Kimball to continue with the Novell case and decide the IBM case as well. But, if any amounts are payable to Novell or IBM, then that matter needs to be taken up by the bankruptcy court. In other words, if the Novell court decides that SCO owes Novell $25 million, then that becomes a $25 million claim in the bankruptcy. Notice the argument that Novell needs to make against SCO hiring four law firms? Or, is it four more law firms? And notice the argument that current SCO management may not be acting in the best interest of the creditors? And, it is the creditors that the court must now consider.

So come Tuesday a lot can change.

SCO can pick its own bankruptcy lawyers. However, the court can either approve or disapprove the payment of anybody for any reason. And, yes, I suppose any conversation between Judge Kimball and the bankruptcy judge might be an interesting one, it is unlikely they will converse. They do not need to. If IBM, Novell or Red Hat do not ask the court for a new trustee, SCO management is the default. If they do, they it all depends upon what they ask the bankruptcy court to do. But, they have to ask.

Personally, I doubt either Novell, IBM or Red Hat would allow current SCO management to be retained. Whether they consult to pick someone else they can advise the court one is up to them. But, this is Saturday and I am sure they have already had a couple of conversations in this regard. What do we do when SCO files bankruptcy? (notice I left off the “if”).

Just keep in mind that the bankruptcy court on its own motion can convert the action into a Chapter 7 Bankruptcy if he feels that Chapter 11 just makes no sense. And if and when the court realizes that only if all of the SCO assets are sold can all or part of the SCO liabilities be paid, that is likely to be the result. Most likely in response to a motion from the fresh new trustee.

Stay tuned. Read Groklaw. (Forget the trade press. They still think that SCO was suing Novell for patent violations. Or, that Microsoft was eventually blocked from bundling IE.)

Maybe you will see some real fireworks come Tuesday. Or, maybe the interested parties will file their own papers and require a hearing down a week or two. But, just remember that the bankruptcy judge now rules the roost. And if he thinks existing SCO lawyers are just a bunch of clowns, they may be treated that way. Or thieves, in which case they will be treated that way. And no doubt Novell lawyers have the option to point out that these same lawyers were advising SCO while they engaged in conduct that Judge Kimball called “conversion”. And do not think for one second that Judge Kimball did not know what conversion is. And do not think that the bankruptcy judge does not know what it is either. He (or she) knows exactly what it is.


Update:

A reader suggested that Novell may have more than just a claim to be processed by the bankruptcy court. And that may be.

The argument goes that SCO converted monies owed to Novell and that Novell should first be paid those monies before general creditors (like IBM and others get their share if anything).

And that might be.

However, all things are now decided by the bankruptcy court. And that court has other creditors to consider as well. So I am just saying that before it was between SCO and Novell. Now the interests of all the creditors have to be taken into account.

Debts incurred by fraud, conversion and things like that are not forgiven by bankruptcy. However, corporations do not have their debts released or forgiven as individuals do. So the court is concerned with how may debts the debtor has and how they can be paid. If it takes Chapter 7 to see that they get paid, then Chapter 7 it is.

Normally, a debtor in Chapter 11 has all kinds of incentives to work with creditors to reach some agreement and let it out of bankruptcy. But, right now, I doubt Novell, IBM or Red Hat are going to agree to anything that lets SCO survive. Not unless they get their money due.

Simply put the Bankruptcy court can take over the Novell, IBM and Red Hat cases entirely if it wants to do so. I doubt that will happen. But, it is within it power to resolve all claims presented to it. And that may require summoning its own jury if needed. I still think it is much more likely that the Novell, IBM and Red Hat cases will stay where they are and any remedies against SCO will have to be approved by the bankruptcy court.

The bankruptcy court could decide that any monies owed to Novell go toward its claim before the court but only as an unsecured creditor just like everyone else. Or, it could decide that Novell gets paid first. And then the rest gets divided up.

But, the real issue is going to be whether SCO has to sell all it has in order to pay anybody. And, my guess is that will be the case. And that means Chapter 7 not 11. But, as I have said, the court itself can move the case to Chapter 7 when it deems it necessary.

Then it depends upon how much money the sale of SCO assets can bring in the sale.

I think Novell, IBM, Red Hat and perhaps others would be interested. Maybe even Microsoft might bid on some stuff. And almost anyone can use a flashy desk as long as they do not admit where they bought it, right? But, this all means SCO is gone.

And, keep in mind that bankruptcies cost real money too. It is a fair estimate that just filing for the bankruptcy is going to soak up about another $5 million in cash money. More lawyers, right? And even SCO has already petitioned the court to pay them off too. So where is SCO going to get the money to pay the creditors. They do not have a choice NOT to sell their stuff if that is what it takes. The trustee in bankruptcy (SCO by default, someone else if Novell, IBM and Red Hat insist and the court agrees) may recommend Chapter 7 and that all stuff be sold off.