Creditors' Committees

Creditors' committees can play a major role in chapter 11 cases. The committee is appointed by the U.S. trustee and ordinarily consists of unsecured creditors who hold the seven largest unsecured claims against the debtor. 11 U.S.C. § 1102. Among other things, the committee: consults with the debtor in possession on administration of the case; investigates the debtor's conduct and operation of the business; and participates in formulating a plan. 11 U.S.C. § 1103. A creditors' committee may, with the court's approval, hire an attorney or other professionals to assist in the performance of the committee's duties. A creditors' committee can be an important safeguard to the proper management of the business by the debtor in possession.....

That makes sense, to let those who are about to be stiffed have some say in how it all happened and what to do going forward. The committee gets to see the books and look over all the records. You can imagine a creditors' committee with Novell and IBM and Red Hat on it, I'm sure.

But who are the top seven creditors, according to SCO's filing, who we would normally therefore expect will be investigating SCO Group's and SCO Operations, Inc.'s "operation of the business" and formulating a plan for SCO to reorganize? The list for SCO Group [PDF] and for SCO Operations is identical, and Novell isn't on it, and neither is IBM or Red Hat. Instead, we find:

• Amici LLC ($500,650.73)
• Boies Schiller (287,256.39)
• Canopy Group ($139,895.00)
• Gre Mountain Heights Property ($132,502.00)
• Microsoft Licensing, Inc. ($125,575.00)
• Sun Microsystems, Inc. ($50,000.00)
• Veritas Software ($37,881.33)

With a couple of possible exceptions, that looks a little like a list of the perps to me.

Is that not bizarre? That can't be the final list. It can't pass the snort test, let alone the laugh test.

SCO is so much fun to watch. I'd say this bankruptcy is going to be at least as entertaining as the SCO saga has been in civil court.

We get to hear from some of the SCO rah rah fan club that was. Laura Didio however appears not to wish to be interviewed, according to Sam Varghese. Enderle presents his opinion, despite claiming the other day not to have been paying attention to SCO for years. And I think MOG, the only true believer still left, makes an appearance. At least it sounds like her writing style. She's incognito, though, posing as ".NETDJ News Desk".

Here's the one you really want to read first: Declaration of Darl C. McBride, Chief Executive Officer, in Support of First Day Pleading [PDF].

I misstyped it initially as Fist Day Pleadings. Well, the brain knows what it knows.

This is the document where he tells the court basically why SCO should be allowed to file for Chapter 11 reorganization, which is for companies that are in a fix, but given a reorganization and a little breathing room, think they can remain in business. The judge must agree that it's realistic. Darl reveals that SCO asks the court to approve SCO hiring not one but four different law firms for the bankruptcy. One of them is, you guessed it, Boies Schiller. He asks the court to appoint them as special litigation counsel in the Chapter 11 case.

*Four* law firms? Why doesn't SCO just petition the court for approval to let it take all its money and throw it down a volcano so Novell can't get any?

SCO also filed a Notice of Bankruptcy [PDF] also with an attached bankruptcy form. Here's some interesting wording:

PLEASE TAKE FURTHER NOTICE that as a result of the pendency of the Debtors' bankruptcy cases and the application of 11 U.S.C. § 362(a)(1), the commencement or continuation of judicial proceedings against the Debtors to pursue prepetition obligations was automatically stayed. The automatic injunction granted by 11 U.S.C. § 362(a) will remain in effect until the bankruptcy case is dismissed or closed or until such earlier times as set forth in 11 U.S.C. § 362(c), (d), (e) and (f).

PLEASE TAKE FURTHER NOTICE that contempt proceedings may be initiated against any party who participates in any violation of the automatic stay, and, pursuant to the provisions of the Bankruptcy Code, the Bankruptcy Court may award actual damages, including costs and attorneys' fees (and, in appropriate circumstances, punitive damages) to compensate the Debtors for loss arising out of violations of the automatic stay.

Nyah, nyah, Novell, you can almost hear them saying. I feel like adding Groklaw to the list of creditors. We'd all saved up to send an attorney to the trial to report on it for Groklaw, and when he tried to cancel the ticket just now, he can't get his money back. So, I guess he could fly to Utah for the sheer glamor of it and check out the great Salt Lake. But no trial for now.

Frank Sorenson has found the filings for us. They filed in US Bankruptcy Court in Delaware. It's Cases 07-11337 and 07-11338, for The SCO Group and SCO Operations, Inc. Here are the documents for SCO Operations, Inc. and I'll put up the filings for SCO Group next:

• Voluntary Petition form
• Resolution of Board of Directors dated September 13
• Certification Concerning 20 Creditors with Largest Unsecured Claims
• Certification Concerning Equity Security Holders
• Corporate Ownership Statement and
• Certification Concerning Creditor Matrix - I'll put that one up after someone redacts all the addresses of individuals, but I'll tell you what I see of interest on the list.

All PDFs. That last is the long list of all the creditors. The Certification Concerning Creditors, second on the list, is the list of the top 20 creditors. And here's the SCO Group filing:

• Voluntary Petition form
• Resolution of Board of Directors dated September 13
• Certification Concerning 20 Creditors with Largest Unsecured Claims
• Certification Concerning Equity Security Holders
• Corporate Ownership Statement and
• Certification Concerning Creditor Matrix

But you know what I don't see yet? An overall statement of assets and liabilities. I believe that is required, so I'll keep looking. Update: Found it. Page 4 of the SCO Group's Voluntary Petition tells us that the assets are $14,800,000 and the debts are $7,500,000. That's not counting the debt the Utah court ruled Novell is owed, amount to be determined at the now postponed trial. And a note says those are approximate values, based on "the Company's consolidated and unaudited balance sheets as of July 31, 2007". Here's the most recent 10Q from April for comparison. And this is interesting. There are 21,782,164 shares of common stock, owned by only 402 holders. That explains a lot. Here's the name of any person who directly or indirectly owns, controls, or holds, with power to vote, 5% or more of the voting securities of debtor: Cede & Co. and Ralph Yarro.

SCO Operations, Inc., in the Corporate Ownership Statement, says that the debtor, SCO Operations, Inc., "discloses that The SCO Group, Inc. owns 100% of the Debtor's equity interests." I remember now that when S2 signed a contract with SCO, it was with SCO Operations, described as "a Delaware corporation and a subsidiary of The SCO Group, Inc.". And I do see on the form that they list estimated assets at $1,000,000.001 to $100 million. Not too precise. And estimated liabilities are the same.

Update 2: Stephen Shankland reports that this means the trial on Monday is off:

IBM didn't comment, but Novell said it is evaluating its options. "U.S. bankruptcy law automatically stays the court case. We're assessing our options for how to pursue our interests," Novell said.

Novell sure has had to work hard for their money. And now they will have to row the boat that little bit harder. And for those of you who bought airline tickets to go to the trial, get on the phone or online fast and cancel.

09/14/2007 - 467 - TRIAL BRIEF [REDACTED] by Defendant Novell, Inc.. (Attachments: # 1 Exhibit 1 # 2 Exhibit 2)(Sneddon, Heather) (Entered: 09/14/2007)

09/14/2007 - 468 - NOTICE OF CONVENTIONAL FILING of Novell's Trial Brief [Filed Under Seal] filed by Defendant Novell, Inc. (Sneddon, Heather) (Entered: 09/14/2007)

A trial brief is where a party tells the court what claims it will be present at trial. It gives the judge an overview of the case. You could think of it as a kind of written, pre-trial opening statement, but to the judge. You've maybe seen opening statements to a jury on TV, where the lawyer tells the jury what happened and what it intends to prove, and this is similar but because it's for the judge, it's less dramatic. No pounding on the table.

SCO will file one too. In fact, it looks like Novell has read a draft of SCO's brief, because on page 20 of the PDF, Novell lists a couple of affirmative defenses SCO says in its trial brief it will raise, estoppel and unclean hands. Whoah! Unclean hands? Looks like we can expect some mud slinging at trial.

You will notice that SCO makes the point that contrary to Novell's assertion, the issue of whether incidental SVRX royalties should go to Novell was not fully briefed. Let's look at that a little more closely.