Chapter 11 Trustee Appointed For SCO

I Don't Believe in Imaginary Property writes "The judge overseeing the SCO Chapter 11 bankruptcy case has issued an order appointing a chapter 11 trustee to oversee SCO's operations. However, the judge's reasoning is far from clear. While the judge believes that SCO has 'abandoned rehabilitation' to bet its future on litigation, he doesn't think it appropriate to convert their case to Chapter 7 liquidation. So SCO's management hasn't been fired yet, but they're no longer fully in charge either. It's not clear why the bankruptcy judge opted for this solution, when even the US Trustee was pushing to fire SCO's management and convert the case to Chapter 7. In short, SCO is still only mostly dead, rather than all dead, and in desperate search of a miracle worker."

Judges rarely convert to chapter 7

[JoshuaZ]

I'm not a lawyer and by no means an expert on bankruptcy but as I understand it bankruptcy judges are generally very hesitant about converting Chapter 11 to Chapter 7 bankruptcies unless pretty much everyone thinks they should. The general attitude of the American bankruptcy system is that companies should generally be given pretty close to every opportunity to get out to the wholes they've gotten into and that we shouldn't start filling the dirt in over them unless we've got really good reasons. Note also that this doesn't mean that SCO won't go through chapter 7. It just means it isn't going through chapter 7 right now. It could still convert later if things show no sign of improvement.

Wikipedia is your friend.

[Ungrounded Lightning]

Looks like that might be it.

According to the Wikipedia article on chapter 11 [wikipedia.org], chapter 11 lets the company run either under a court-appointed trustee or the "debtor in posession", i.e. the original management acting as a trustee and operating under the same rules, behind the shield of the bankruptcy process. And:

Appointment of a trustee requires some wrongdoing or gross mismanagement on the part of existing management and is relatively rare.

Looks like the judge is saying that, while it isn't clear yet whether SCO will be able to emerge from chapter 11 as a viable business or will have to be liquidated under chapter 7, the current management is either grossly mismanaging the company or at least making it appear that they aren't doing as well for the interests of the creditors and stockholders as a trustee would.

Re:Free UnixWare and OpenServer!

[Shakrai]

That's not likely to happen unless someone with deep pockets is willing to buy the source code and re-release it under an open source license. The job of the bankruptcy trustee isn't to punish SCO -- under a Chapter 7 his job is to maximize the value of SCO's assets so the creditors get as much of their money back as possible. Under a Chapter 11 his job is to see that they return to business as a viable entity while seeking the best possible deal for the creditors -- but seeing as how SCO has no viable business plan I'd say it's only a matter of time before it becomes a Chapter 7.

Re:Free UnixWare and OpenServer!

[sconeu]

They can't.

Please see Ransom Love's comment [eweek.com]:

Indeed, at first we wanted to open-source all of Unix's code, but we quickly found that even though we owned it, it was, and still is, full of other companies copyrights.

Re:Maybe to keep 'em from sneaking stuff out the d

[Artifakt]

SCO petitioned at the last minute for an administrator, with less power than a real trustee, to handle only selected parts of a full Chapter 11 proceeding. That's what they liked best. From Groklaw, no one seems to know if such an arrangement was even a legal option.

A chapter 7 with appointed trustee is what they would like least. That presumes there's no chance of the company ever reorganizing, and the goal is instead to pay off as many of the creditors as possible.

The judge gave them something in the middle - a standard chapter 11 ,which means he is holding out the chance that some purchase offer might be legitimate and SCO just might rise again.

If I'm ever facing 20 years in maximum security, I plan to claim house arrest with an ankle bracelet is quite reasonable and customary for whatever I did, and see if the judge will split the difference and give me 5 in minimum security. Who knows, it could work.

Re:Free UnixWare and OpenServer!

[gdshaw]

You wouldn't need very deep pockets, and IBM could certainly afford it without blinking, but I don't think they will for the very simple reason that those particular copyrights are of little importance: at worst they can be used to threaten a few of SCO's ex-customers, but that's about all.

Of somewhat greater importance are the core System V copyrights, but according to the Utah ruling these are owned by Novell. All that needs to happen at this point is for the Utah ruling to stand.

(Of course, even with those copyrights it would be a huge uphill struggle to threaten Linux at this point, but better that no-one is given the opportunity to try.)

Re:Suing people is *not* a valid business model...

[Rogerborg]

I have some bad news for you. Assuming that SCO don't appeal this Order and a chapter 11 Trustee is appointed, what are his options?

1. Shut the company down and pay the last remaining cash to the creditors. Since there's not enough left in SCO's accounts (now, let alone after Darl & Co loot it) to pay the creditors, this is the option of last resort, and not what a Chapter 11 Trustee is meant to do anyway.
2. Cut or sell off the loss making parts of the company to fund the profitable bits. But since SCO has systematically cannibalised everything except the litigation, there are no profitable bits left. As the bankruptcy judge has noted, the litigation is the only part of the company that might make money.
3. Sell part of the company to fund the litigation. However, there's nothing of value left to sell. SCO have just been denied the opportunity to pull an incestuous "sale" of some nebulous "assets" to a sock-puppet (i.e. unXis), and I can't see an independent Trustee allowing any such shennanigans.
4. Sell the whole company - i.e. the litigation - and make it someone else's problem.

I think option 4 is the only realistic one. This name on this litigation is about to change, but it isn't going anywhere.