

I can't believe there's yet more major news, all in one day. But there is, from the bankruptcy front. SCO's period of exclusivity is over, as you can see from the minutes of today's hearing [PDF]. Look at number 1 on the list under the heading "Proceedings" and you will see the word: "DENIED". This was regarding the SCO motion [PDF] to extend the period of exclusivity, its 4th, the motion that Al Petrofsky objected to pro se, as you can see on the Notice of matters on the agenda for today. So now IBM and Novell and the US Trustee's office and any creditors -- they can one and all come up with plans, not just SCO, and may the best one win, so to speak.



IBM was represented, as was Novell, and the US Trustee was in attendance today too, as you can see from the attachment [PDF], listing everyone there. There was a status conference on SCO's latest plan, but we'll have to wait for the transcript of the hearing for those details. But I can guess. Not exactly airborne, is my best guess, given the rest of the day's news. What might it mean? Chapter 7, anyone? A real plan that doesn't leave Novell out in the cold? That would be a nice change. Here are the filings: 03/30/2009 - 730 - Order (SUPPLEMENTAL) Granting And Sustaining Debtors First (Non-Substantive) Omnibus Objection To Claims (related document(s) 574 ) Order Signed on 3/30/2009. (Attachments: # 1 Exhibit "A") (JSJ) (Entered: 03/30/2009) 03/30/2009 - 731 - Minutes of Hearing held on: 03/30/2009 Subject: DISCLOSURE STATEMENT. (vCal Hearing ID (88117)). (related document(s) 727 ) (SS) Additional attachment(s) added on 3/30/2009 (SS). (Entered: 03/30/2009) Update: Here are some possible outcomes, besides Chapter 7 or a successful sale and reorganization by SCO, from the US Courts Bankruptcy Basics, Chapter 11: Appointment or Election of a Case Trustee Although the appointment of a case trustee is a rarity in a chapter 11 case, a party in interest or the U.S. trustee can request the appointment of a case trustee or examiner at any time prior to confirmation in a chapter 11 case. The court, on motion by a party in interest or the U.S. trustee and after notice and hearing, shall order the appointment of a case trustee for cause, including fraud, dishonesty, incompetence, or gross mismanagement, or if such an appointment is in the interest of creditors, any equity security holders, and other interests of the estate. 11 U.S.C. § 1104(a). Moreover, the U.S. trustee is required to move for appointment of a trustee if there are reasonable grounds to believe that any of the parties in control of the debtor "participated in actual fraud, dishonesty or criminal conduct in the management of the debtor or the debtor's financial reporting." 11 U.S.C. § 1104(e). The trustee is appointed by the U.S. trustee, after consultation with parties in interest and subject to the court's approval. Fed. R. Bankr. P. 2007.1. Alternatively, a trustee in a case may be elected if a party in interest requests the election of a trustee within 30 days after the court orders the appointment of a trustee. In that instance, the U.S. trustee convenes a meeting of creditors for the purpose of electing a person to serve as trustee in the case. 11 U.S.C. § 1104(b). The case trustee is responsible for management of the property of the estate, operation of the debtor's business, and, if appropriate, the filing of a plan of reorganization. Section 1106 of the Bankruptcy Code requires the trustee to file a plan "as soon as practicable" or, alternatively, to file a report explaining why a plan will not be filed or to recommend that the case be converted to another chapter or dismissed. 11 U.S.C. § 1106(a)(5). Upon the request of a party in interest or the U.S. trustee, the court may terminate the trustee's appointment and restore the debtor in possession to management of bankruptcy estate at any time before confirmation.11 U.S.C. § 1105. The Role of an Examiner The appointment of an examiner in a chapter 11 case is rare. The role of an examiner is generally more limited than that of a trustee. The examiner is authorized to perform the investigatory functions of the trustee and is required to file a statement of any investigation conducted. If ordered to do so by the court, however, an examiner may carry out any other duties of a trustee that the court orders the debtor in possession not to perform. 11 U.S.C. § 1106. Each court has the authority to determine the duties of an examiner in each particular case. In some cases, the examiner may file a plan of reorganization, negotiate or help the parties negotiate, or review the debtor's schedules to determine whether some of the claims are improperly categorized. Sometimes, the examiner may be directed to determine if objections to any proofs of claim should be filed or whether causes of action have sufficient merit so that further legal action should be taken. The examiner may not subsequently serve as a trustee in the case. 11 U.S.C. § 321. Presumably, if SCO isn't ready to file a plan, they'd prefer the latter to the former, since under the latter scenario, the executives remain in charge. And here's the information, from the same page, on the outside limits of the period of exclusivity: Who Can File a Plan The debtor (unless a "small business debtor") has a 120-day period during which it has an exclusive right to file a plan. 11 U.S.C. § 1121(b). This exclusivity period may be extended or reduced by the court. But, in no event, may the exclusivity period, including all extensions, be longer than 18 months. 11 U.S.C. § 1121(d). After the exclusivity period has expired, a creditor or the case trustee may file a competing plan. The U.S. trustee may not file a plan. 11 U.S.C. § 307. A chapter 11 case may continue for many years unless the court, the U.S. trustee, the committee, or another party in interest acts to ensure the case's timely resolution. The creditors' right to file a competing plan provides incentive for the debtor to file a plan within the exclusivity period and acts as a check on excessive delay in the case. Heh heh. That's the theory, anyway. SCO filed for Chapter 11 protection in September of 2007. So they did stretch it out as long as the law allows. Actually, there is another nuance: Acceptance of the Plan of Reorganization As noted earlier, only the debtor may file a plan of reorganization during the first 120-day period after the petition is filed (or after entry of the order for relief, if an involuntary petition was filed). The court may grant extension of this exclusive period up to 18 months after the petition date. In addition, the debtor has 180 days after the petition date or entry of the order for relief to obtain acceptances of its plan. 11 U.S.C. § 1121. The court may extend (up to 20 months) or reduce this acceptance exclusive period for cause. 11 U.S.C. § 1121(d). In practice, debtors typically seek extensions of both the plan filing and plan acceptance deadlines at the same time so that any order sought from the court allows the debtor two months to seek acceptances after filing a plan before any competing plan can be filed. If the exclusive period expires before the debtor has filed and obtained acceptance of a plan, other parties in interest in a case, such as the creditors' committee or a creditor, may file a plan. Such a plan may compete with a plan filed by another party in interest or by the debtor. If a trustee is appointed, the trustee must file a plan, a report explaining why the trustee will not file a plan, or a recommendation for conversion or dismissal of the case. 11 U.S.C. § 1106(a)(5). A proponent of a plan is subject to the same requirements as the debtor with respect to disclosure and solicitation. In a chapter 11 case, a liquidating plan is permissible. Such a plan often allows the debtor in possession to liquidate the business under more economically advantageous circumstances than a chapter 7 liquidation. It also permits the creditors to take a more active role in fashioning the liquidation of the assets and the distribution of the proceeds than in a chapter 7 case. So there are actually two exclusivity deadlines, one for filing a plan and the second for acceptance. You can read the history of all the extensions in SCO's Fourth Motion [PDF] for another extension of exclusivity. Originally the deadline for filing a plan was set to expire on January 12, 2008. But SCO filed for an extension and got it, setting the two new deadlines for May 11, 2008 and July 11, 2008 for acceptance. Then in February of 2008, SCO filed a plan and disclosure statement. But there were objections filed, and then on May 9, 2008, SCO filed a second motion to extend the exclusivity period. This was granted also, so the two new deadlines were supposed to be December 31, 2008 and March 2, 2009. The motion at issue at yesterday's hearing, then, was asking to extend the deadlines 16 days. Of course, you likely notice that the motion was filed on December 30th and the deadline to file a plan was due to run out the following day. So. A way to try to get a de facto extension? Who knows, but that is when it was filed. From my reading of the rules, I don't think the deadline can be extended after the 18 months have run out. The following month, in any case, on January 22nd, Petrofsky filed his objection [PDF] titled "Objection of Petrofsky to Fourth Motion by Debtors Under Section 1121(d) for Extension of Exclusivity Deadlines". But the actual objection was not to the deadline to file a plan. As you can see on the first page, the objection was only to the 16-day extension request related to acceptance. The basis for the motion was that "the request is premature and can be better addressed in March when more information will be available." By then, it would presumably be known if the latest disclosure statement was approved, and so the objection says that SCO's motion should be denied "without prejudice to the Debtors filing another timely extension motion on or before March 2." Paragraphs 10 and 11: 10. The Debtors apparently intend (barring another last-minute about-face) to seek approval of a disclosure statement on February 25. If such approval is obtained on that date, or on any date on or before March 2, and the Debtors then file another motion to extend the Plan Acceptance Deadline to March 18, I will have no objection. 11. However, if, come March 2, the Debtors have not made an iota of progress toward confirmation, then the estate would clearly be damaged if exclusivity needlessly continued, due to the court having prematurely granted an extension. Time is of the essence in bringing this case to a resolution. The Debtors' Monthly Operating Reports show that the health of the estate has been steadily deteriorating under the Debtors' stewardship. At the time, there was a hearing scheduled regarding the disclosure statement for February 25. Then on February 18, IBM filed an Objection to SCO's Motion to Approve Disclosure Statement. So did Novell. Those two objections pretty much stood for their objections to extension of the deadline for acceptance, in a way, in that they asked that the disclosure statement, and hence acceptance, not happen *at all* in its current form. For them, it was not about 16 days here or there; to them, the plan was not worthy of confirmation at any time. Then on February 23, two days before the hearing was scheduled to occur, it was cancelled [PDF] and two hearing dates were set up. The one relevant to IBM and Novell's objections to SCO's disclosure statement was set for March 30. That same day the hearing was rescheduled, February 23, Petrofsky filed a supplemental objection [PDF]. In it we learn that at the January 29th hearing, SCO attorney Grace Robson offered to continue the hearing on SCO's motion for another extension to the February 25th hearing, with the exclusivity extending until then, and Petrofsky agreed to that. Page 3: 4. As I stated in my original Objection, I do not object to a further enlargement of the 120-day period specified in 11 U.S.C. 1121(c)(2) (the "Plan-Filing Period") to extend it through January 16, 2009. The issue in dispute was the requested further enlargement of the 180-day period specified in 11 U.S.C. 1121(c)(3) (the "Plan-Acceptance Period"). 5. As I agreed at the January hearing, if the Court approves a disclosure statement at the February hearing and sets a confirmation hearing date that is on or about March 25, then I have no objection to the Plan-Acceptance Period being extended through that date. 6. As the Debtors agreed at the January hearing, if the Court does not approve a disclosure statement at the February 25 hearing, then the Court should do as I requested in my original Objection: enter an order granting an extension of the Plan-Filing Period through January 16, 2009, but denying, without prejudice, any extension of the Plan-Acceptance Period. For this alternative, I have attached a suitable proposed form of order. 7. I oppose any further continuation of the hearing on the motion. When the 25th got rescheduled for March 30th, despite his objection, so did his objection to the motion. That was to be the hearing on SCO's motion, so that is how all that happened. But at the same time, the issues raised by IBM and Novell were also to be heard. Their objections, unlike Petrofsky's, were fundamental -- that the disclosure statement should not be approved at all. And if it was not confirmed, then it would mean that SCO had missed the deadline Petrofsky was objecting to, in that he had no objection to an extension if the disclosure statement was approved. He was, as I read it, saying to hurry up and confirm and get the show on the road. In that sense, I read it as helpful to SCO. IBM and Novell, in contrast, were arguing that the exclusivity period was up, and SCO had failed to file an acceptable plan. You can find SCO's plan of reorganization and the disclosure statement here, if you'd like to dig further. All of this was happening while I was on my break, which is why I'm trying to bring us up to speed now. Now, let's look at what IBM was objecting to, which was the disclosure statement itself, not dates of confirmation of it, so you'll know what it would have been arguing yesterday at the hearing: Preliminary Statement 1. The Motion seeks approval of a Disclosure Statement for the Debtors' Amended Joint Plan of Reorganization, filed January 8, 2009 (the "Amended Plan") [Docket No. 654], that lacks substantial and necessary information: (1) an accurate and adequate summary of the Amended Plan and sufficient information describing its proposed execution; (2) adequate information about reorganized SCO's business plan as a going-concern; (3) adequate information about financial projections; (4) adequate information about certain pending intellectual property litigation; (5) a complete and accurate description and valuation of the Debtors' assets and sufficient detail with respect to the condition of the Debtors during the pendency of these Chapter 11 cases; (6) any information regarding the potential business risks posed if reorganized SCO proceeds under the Amended Plan; and (7) adequate information with respect to the potential Federal tax consequences under the Amended Plan. 2. Because all of this information is required to enable creditors and equity security holders to make an informed judgment about whether to accept or reject the Amended Plan, the Disclosure Statement does not meet the requirements of section 1125 that a disclosure statement contain "adequate information". For these reasons, as explained more fully below, this Court should deny the Motion.... Conclusion For the foregoing reasons, IBM respectfully requests that this Court deny the Motion unless SCO supplements the Disclosure Statement to provide adequate information about the matters set forth above. So IBM's issue wasn't whether SCO should have 16 more days or not. Its objection was to the plan itself and to its disclosure statement altogether. The plan was no plan, in fact, IBM argued in its objection, because there was inadequate information. How can creditors evaluate a plan if they are not clear about what the plan is or how a reorganized SCO might have a viable business going forward? 26. The need for "adequate information" about reorganized SCO's go-forward business model is especially acute because the Amended Plan does not seem even to address any of the factors that drove SCO into bankruptcy. SCO filed for Chapter 11 because of, among other things, a significant "decline in revenue" in UNIX-based products and services over the past several years due to increased competition. (D.S. at 10-11.) The Disclosure Statement does not suggest that this problem has gone away and simply offers up an Asset Sale that would involve selling all or some portion of the Mobility and OpenServer Businesses, which appear to include every single viable non-UNIX business the Debtors own. In effect, the Disclosure Statement informs creditors and equity security holders that if the Asset Sale is consummated, the result would divest SCO of its entire mobile business, the very same mobile business that the Debtors devote numerous Disclosure Statement pages to describing as representative of the next-generation of the reorganized Debtors' products and services; the very same mobile business that the Debtors adorn with expectations of explosive growth in emerging markets and the very same mobile business for which the Disclosure Statements makes inflated promises, including, notably, the SCO Cloud Server initiative, which "is designed to become the foundation of the reorganized SCO [sic] for the next 30 years." (D.S. at 24, See also, Id. at 6-9, 22-24 (for various descriptions of the Debtors' mobile products and services).) Yet the Disclosure Statement provides only vague, general statements about the remaining UNIX-based business.... 33. Additionally, the descriptions and financial projections of certain of the go-forward business model's elements, not including the as yet unreleased SCO UNIX Virtual line of products and services, often appear to be based on factually unsupported assumptions as to projected revenue growth. While debtors may be entitled to a certain degree of optimism and the view that their operations may improve, the Debtors here cannot reasonably represent that their operations will improve if all historical facts and their own admissions suggest the contrary, including the disclosure that SCO filed for Chapter 11 because of, among other things, a significant "decline in revenue" in UNIX-based products and services over the past several years due to increased competition. (See, D.S. at 10-11.) The Disclosure Statement nowhere suggests that this problem has gone away. 34. The Disclosure Statement provides no financial projections estimating the potential effect on revenue of an improved pricing and discount strategy nor any information as to the time for implementing the strategy. The only business for which the Disclosure Statement provides the pricing change effective date is "FCmobilelife", but any change for FCmobilelife is likely to be inconsequential for reorganized SCO as a going-concern because it is part of the mobility business contemplated to be sold in the Asset Sale. Then there is the issue of how creditors would be paid. IBM, for example, seems to be getting...well, maybe nothing of value at all in the proposed plan. There are many, many other objections in their list, enough to fill up the hearing. But Novell objected too, and here are some of the reasons: Novell, Inc. ("Novell"), and its subsidiary, SUSE Linux GmbH ("SUSE" and together with Novell the "Novell Parties") object to the proposed Disclosure Statement in Connection with Debtors' Amended Joint Plan of Reorganization (the "Amended Disclosure Statement" or "ADS") of debtors and debtors in possession The SCO Group, Inc. and SCO Operations, Inc. ("SCO" or the "Debtors") in connection with their Debtors' Amended Joint Plan of Reorganization (the "Amended Plan" or "AP"). To fund the Amended Plan, the Debtors propose a combination of continued business operations and possible auction sale of some of their assets. The Amended Plan proposes to pay most creditors in full quickly, but considerably stretches out payment of one of the two classes of general unsecured creditors: the class of general unsecured creditors, such as Novell, International Business Machines ("IBM") and Red Hat, against whom the SCO is in prepetition litigation. As certain pivotal plan terms reflect, the Debtors themselves recognize that they may be unable to pay these litigation creditors in full, so the Amended Plan proposes to pay them in new SCO stock if cash to pay them is in insufficient. In the meantime, however, SCO's current shareholders will be able to keep their existing stock. Clearly, the Debtors' ability to fund the Amended Plan is crucial to all creditors, but especially the litigation creditors. Hence, a thorough analysis of the Debtors' business plan, the proposed auction, and the claims the Debtors may have to pay, is indispensable to help creditors decide whether to vote for the Amended Plan. Yet, the Amended Disclosure Statement fails to provide the kind of meaningful information that would enable creditors to judge the Debtors' prospects of meeting their commitments under the Amended Plan. For this reason, the Court should deny approval of the Amended Disclosure Statement. The Court should also disapprove the Amended Disclosure Statement because the Amended Plan is unconfirmable on its face as violating the absolute priority rule in permitting existing shareholders to retain their stock even though its terms explicitly anticipate that litigation creditors may not be paid in full.... IV. CONCLUSION 26. Facing the expiration of their exclusivity rights for plan confirmation after languishing in chapter 11 for nearly 1 1/2 years, the Debtors' overriding concern remains control of the Pending Litigation for as long as possible in the hope it will prove to be a windfall. The Amended Plan has been cobbled together to serve this purpose. The Amended Disclosure Statement has been compiled accordingly. It is filled with material that either simply tracks the Amended Plan or is pro forma that is "disclosure" in name only. For the reasons stated above, the Amended Disclosure Statement is inadequate and should be rejected. As you can see, Novell also raised fundamental objections to the plan and the disclosure statement, and you'll note that Novell mentions that SCO was facing, as of the February 18th date of this filing, "the expiration of their exclusivity rights for plan confirmation". In short, the clock ran out, and no viable plan was offered, according to both IBM and Novell, so now they are free, as are other creditors, to offer plans they think might work better than SCO's.