SCO is bleeding money, IBM tells the court, and it's had plenty of time to try to file a reasonable plan, but it has failed. SCO has told the court repeatedly that deals were just around the corner from finality, but no deals have ever materialized. The most recent claim was that prospective buyers/investors would materialize as soon as the appeal was filed. "However," IBM tells the court, "the Debtors have not been overwhelmed with prospective purchasers since the filing of their appeal in the Novell Case." The only reasonable course for the court now, IBM suggests, and the only legally appropriate course, is to convert the cases to Chapter 7 and let an impartial trustee take over.
The introductory remarks give the overview, after which IBM provides the damaging details:
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re:
The SCO GROUP, INC., et al.,
Debtors.
Chapter 11
Case No. 07-11337 (KG)
(Jointly Administered)
Hearing Date: June 12, 2009 at 2:00 p.m. (ET)
Objection Deadline: June 1, 2009 at 4:00 p.m. (ET)
MOTION OF INTERNATIONAL BUSINESS MACHINES CORPORATION
FOR AN ORDER CONVERTING THE DEBTORS' CHAPTER 11 BANKRUPTCY
CASES TO CASES UNDER CHAPTER 7 OF THE BANKRUPTCY
CODE
International Business Machines Corporation ("IBM"), a
creditor and equity security holder in these Chapter 11 cases, by
its undersigned counsel, submits this motion for an order
converting these Chapter 11 cases of the debtors and debtors in
possession, The SCO Group, Inc. ("SCO Group") and SCO
Operations, Inc. ("Operations", and, collectively with SCO
Group, "SCO" or the "Debtors"), to cases under
Chapter 7.
PRELIMINARY STATEMENT
1. In the more than 19 months since the Debtors filed these
Chapter 11 cases, they have squandered cash and have operated at a
loss (even excluding reorganization items). They freely admit that
they are not likely to have the liquidity to sustain their
operations for much longer. The Debtors have failed in every
attempt to sell or reorganize the business. They have failed to
provide evidence of any viable business and have succeeded only in
depleting the limited assets available to satisfy creditors. There
is neither a viable business to reorganize nor an advantage to
liquidating under Chapter 11. To conserve whatever value may still
remain in the Debtors' assets, these cases should be converted to
cases under Chapter 7.
1
JURISDICTION AND VENUE
2. The Court has jurisdiction over this matter under 28 U.S.C.
§§ 157 and 1334. This is a core proceeding under 28
U.S.C. § 157(b). Venue is proper in this district under 28
U.S.C. §§ 1408 and 1409. The statutory predicate for the
relief requested herein is 11 U.S.C. § 1112(b).
BACKGROUND
A. The Debtors' Litigation against IBM and
Novell
3. In early 2003, SCO attempted to profit from the increasing
popularity of the Linux operating system by, among other things,
embarking on a far-reaching publicity campaign to create the false
and unsubstantiated impression that SCO had rights to the Linux
operating system that it does not have and by bringing baseless
legal claims against IBM, Novell, Inc. ("Novell") and
others.
4. SCO sued both IBM and Novell in separate actions in Utah,
where SCO has its principal place of business (such cases
respectively, the "IBM Case" and the "Novell Case").
In response, IBM and Novell asserted several counterclaims against
SCO. The parties have been litigating separate cases in Utah for
more than five years in the United States District Court for the
District of Utah (the "Utah Court").
5. SCO's cases against IBM and Novell concern a host of complex
intellectual property and other issues relating to SCO's UNIX
business, including: who owns the copyrights to the UNIX operating
system; whether SCO has the right to control hundreds of millions
of lines of computer source code created and owned by IBM; whether
SCO has the right to foreclose the use by others of the
publicly-available Linux operating system; and whether IBM has a
perpetual and irrevocable license relating to UNIX.
2
6. In a series of decisions, the Utah Court called into question
SCO's statements about its claims and rights and, at least in the
IBM Case, materially limited SCO's case. More importantly, the Utah
court granted partial summary judgment in the Novell Case,
rejecting two keystones of SCO's litigation campaign. The court
ruled that Novell, not SCO, owns the core UNIX copyrights and that
Novell has the right, which it has exercised on IBM's behalf, to
waive SCO's purported claims against IBM (the "Novell Summary
Judgment Ruling"). Although the filing of these Chapter 11
cases automatically stayed further proceedings in that litigation,
this Court modified the stay to permit Novell to pursue the Novell
Case except with respect to determination of the imposition of a
constructive trust, an issue over which this Court retained
jurisdiction. (See Memorandum Opinion (filed herein November
27,2007); Order Granting Novell's Motion for Relief From the
Automatic Stay to Proceed with the Lawsuit (filed herein November
27, 2007).) [Docket Nos. 232 and 233] On November 20, 2008, the
Utah Court entered a Final Judgment against SCO in the Novell Case,
and on November 25, 2008, SCO filed a notice of appeal.
7. While the Utah Court has not yet ruled on IBM's summary
judgment motions (which concern all of SCO's claims), the Utah
Court has stated that the Novell Summary Judgment Ruling
"significantly impacts" the IBM Case. The parties disagree as to
the full effect of the Novell decision on the IBM Case, but SCO
concedes that the ruling forecloses six of SCO's nine claims
against IBM.
8. The Utah litigations and their cost, coupled with SCO's
declining revenues, led SCO to file these Chapter 11 cases on
September 14, 2007 (the "Petition Date").
3
B. The Debtors' Business & Operations During the
Chapter 11 Cases
9. Since the Petition Date, the Debtors have been operating
their businesses as debtors in possession under sections 1107 and
1108 of the Bankruptcy Code. No trustee or examiner has been
appointed in the Chapter 11 cases.
10. The Debtors have lost money almost continuously since the
filing of their Chapter 11 cases. The Debtors have had a cumulative
negative cash flow of $3,644,300 since the start of 2008, for an
average monthly negative cash flow of $260,307 over that period,
and a cumulative net operating loss of $11,296,087 since the start
of 2008, for an average monthly operating loss of $804,863 over the
period.1
Even excluding reorganization items, the cumulative net operating
loss of the Debtors since the Petition Date is $8,417,789. The
Debtors have not generated sufficient cash flow to rehabilitate or
adequately fund a feasible plan of reorganization. The Debtors have
provided no evidence that indicates that this trend will
reverse.
11. In addition, the Debtors' business has shriveled during the
Chapter 11 cases.2 As of September 10, 2007, the Debtors and
their foreign subsidiaries and affiliates had a total of 123 full
and part-time equivalent employees. (McBride Decl. at ¶ 6.) As
of January 6, 2009, they had 66. (Second Disclosure Stmt. at 3.) As
of September 10, 2007, the Debtors had resources, employees or
contractors in 12 non-U.S. locations: the United Kingdom, Germany,
France, Israel, Italy, China, Korea, Netherlands, Eastern Europe,
India, Japan, Australia and Taiwan. (McBride Decl. at ¶ 26.)
As of January 6, 2009, they had 9 non-U.S. locations.
(See
4
Second Disclosure Stmt. at 8.) In the years ending October 31,
2004, 2005 and 2006, the Debtors incurred research and development
expenses of $10,661,000, $8,337,000 and $8,045,000, respectively.
(McBride Decl. at ¶ 31.) In the two fiscal years since the
Petition Date, the amounts had continued shrinking to $6,077,000
and $3,684,000. (First Disclosure Stmt. (cited infra) at 9;
Second Disclosure Stmt. at 9.). In addition, "revenues from the
Debtors' ongoing customer base have been diminishing over the past
several years", and "revenue projections for the traditional
UnixWare and OpenServer products are estimated to decline at [a]
20% rate ...". (Second Disclosure Stmt. at 40.) Finally, the
Debtors have expressed little confidence that their businesses can
remain viable as a going concern.
C. Proceedings in the Debtors' Chapter 11
Cases
12. In the past 19 months, while the Debtors have continued to
lose millions of dollars, they have filed and withdrawn two sale
motions and two plans and have requested four extensions of
exclusivity, each with the promise that a confirmable plan was just
around the corner.
(i) The Two Sale Motions and the Two Plans
(a) The Emergency Sale Motion to York
13. On October 23, 2007, little over a month after the Petition
Date, with barely any supporting information, the Debtors filed an
Emergency Motion of the Debtors for an Order (A) Approving Asset
Purchase Agreement, (B) Establishing Sale and Bidding Procedures
and (C) Approving the Form and Manner of the Notice of Sale
(the "Emergency Sale Motion") [Docket No. 149] to sell
substantially all their assets to York Capital Management
("York"). The Emergency Sale Motion attached only a
nonbinding term sheet. Neither the Emergency Sale Motion nor the
attached term sheet listed just what property the Debtors would
sell, which contracts it would assign or which litigation rights it
would transfer. For its non-binding
5
commitment, York requested bidder protections, including a cash
break-up fee of $780,000 and expense reimbursements in an amount up
to $300,000. IBM, Novell and the United States Trustee all filed
objections to the Emergency Sale Motion [Docket Nos. 180, 179 and
202].
14. On November 16,2007, just minutes before the hearing on the
Emergency Sale Motion, the Debtors filed the asset purchase
agreement contemplated by the Emergency Sale Motion. The asset
purchase agreement, however, was not signed by either York or the
Debtors, nor did it include any of the schedules or exhibits
identifying the assets to be sold or the sale terms. The Court
denied the Emergency Sale Motion, finding that proceeding with an
asset sale without adequate disclosure of what assets the Debtors
intended to sell and without any binding sale documents would
"substantively prejudice" the parties in interest and even the
Debtors. (See Transcript of Nov. 16,2007 Hearing at
38:1-39:15 (filed Nov. 26, 2007).) [Docket No. 231] Although the
Court gave the Debtors time to complete and execute the definitive
sale documents and prepare a revised Emergency Sale Motion, the
Debtors withdrew the Emergency Sale Motion just days later on
November 20, 2007 [Docket No. 225].
(b) The SNCP Expense Motion and Plan
15. On February 14, 2008, the Debtors filed the Debtors'
Motion to Approve Settlement Compensation or Sale Compensation and
Expense Reimbursement to Plan Sponsor Stephen Norris Capital
Partners, LLC ("SNCP") (the "SNCP Expense Motion")
[Docket No. 346], attaching a Memorandum of Understanding executed
with SNCP that provided Plan Sponsor protections (including an
administrative expense claim for expense reimbursement of up to
$500,000) and an outline of a plan. The SNCP Expense Motion
accurately labeled the request to grant the Plan Sponsor
protections administrative expense priority "extraordinary" and
without precedent. Neither a plan nor a disclosure statement were
provided before or with the
6
SNCP Expense Motion, only a promise that the "Debtors will file
forms of the Definitive Documents (including those to be executed
at the Effective Date of the Plan), at least 5 business days before
the hearing on approval of the Disclosure Statement". (SNCP Expense
Motion at Prelim. Stmt.). About two weeks later, on February 29,
2008, the Debtors filed the Debtors' Joint Plan of
Reorganization (the "First Plan of Reorganization")
[Docket No. 368] and the Disclosure Statement in Connection With
the Debtors' Joint Plan of Reorganization (the "First
Disclosure Statement") [Docket No. 369], but never filed any
"Definitive Documents".
16. IBM, Novell and the United States Trustee all filed
objections to the SNCP Expense Motion [Docket Nos. 407, 410 and
418]. IBM and Novell also filed objections to the approval of the
First Disclosure Statement [Docket Nos. 408 and 412].
17. At the hearing on the First Disclosure Statement on April 2,
2008, the Debtors explained that they and SNCP had decided to
restructure and renegotiate the terms of the proposed plan and, as
a result, "we're not going forward with this plan sponsor
protections". (Transcript of April 2, 2008 Hearing at 11:22-23
(filed April 10, 2008).) [Docket No. 437] In addition, in the face
of the objections, the Debtors withdrew the First Plan of
Reorganization and the First Disclosure Statement at the hearing
and, referring to the plan, the disclosure statement and related
definitive documentation, the Debtors promised the Court, "we won't
file it in pieces anymore". (Transcript of April 2, 2008 Hearing at
9:4-5.)
18. Two later motions to extend exclusivity referred to the
Debtors' continuing progress with SNCP (See Second Extension
Motion and Third Extension Motion cited infra.), until
eventually the Debtors finally conceded that the SNCP transaction
had failed. (Second Disclosure Stmt. at 20.)
7
(c) The Stand Alone Plan And Second Sale Motion
19. On January 8, 2009, the Debtors filed the Debtors' Amended
Joint Plan of Reorganization (the "Second Plan of Reorganization")
[Docket No. 654] and the Second Disclosure Statement and scheduled
the hearing on approval for February 25, 2009. IBM and Novell both
objected to the approval of the Second Disclosure Statement [Docket
Nos. 703 and 704].
20. In addition, on February 4, 2009, the Debtors filed the
Debtors' Motion for an Order (I) (A) Establishing Sale and Bid
Procedures, (B) Approving Form of Asset Purchase Agreement, and (C)
Approving the Form and Manner of Notice of Sale; and (II) Approving
(A) Sale of Certain Assets Free and Clear of Interests and (B)
Assumption and Assignment of Executory Contracts and Unexpired
Leases (the "Second Sale Motion") [Docket No. 695]. IBM
and Novell both filed objections to the Second Sale Motion on
February 18, 2009 [Docket Nos. 702 and 706], and the Debtors
withdrew the Second Sale Motion on March 12, 2009 [Docket No.
717].
21. The Debtors continued the hearing on the Second Disclosure
Statement to March 30, 2009, but the Debtors were still not ready
to proceed, so the Court held a status conference hearing instead
to allow the Debtors to update the Court on the status of the
Second Plan of Reorganization. At the hearing, the Debtors advised
the Court that they would not proceed with either the Second Plan
of Reorganization or the Second Sale Motion.
(ii) The Unfulfilled Promises In The Four Exclusivity
Extension Motions
(a) The First Exclusivity Extension Motion
22. On January 2, 2008, the Debtors filed the first Motion by
Debtors Under Section 1121(D) for Extensions of Exclusivity
Deadlines (the "First Extension Motion") [Docket
8
No. 289]. The Debtors reminded the Court that the "Debtors had
previously expressed their intention and ability to file a plan by
the statutory 120-day deadline" (First Extension Motion at ¶
10.), but acknowledged that they could not do so. The First
Extension Motion requested an extension of the exclusivity period
to file a plan for an additional 120 days to May 11, 2008,
primarily to allow the Debtors to wait until judgment had been
reached in the Utah Court as to the amount of Novell's claim in the
Novell Case "even if the entire judgment is under appeal".
(Id. at ¶ 13.) The Court granted the First Extension
Motion [Docket No. 329].
(b) The Second Exclusivity Extension Motion
23. On May 9, 2008, the Debtors filed the Second Motion by
Debtors Under Section 1121(D) for Extension of Exclusivity
Deadlines (the "Second Extension Motion") [Docket No.
470] requesting an extension of exclusivity to August 11, 2008,
arguing that such an extension will allow the First Plan of
Reorganization to reflect the results of the trial which concluded
on May 2, 2008 in the Utah Court as to the amount of Novell's claim
in the Novell Case. Over Novell's response to the Second Extension
Motion [Docket No. 491], the Court granted the Second Extension
Motion [Docket No. 502].
(c) The Third Exclusivity Extension Motion
24. On August 11, 2008, the Debtors filed the Third Motion by
Debtors Under Section 1121(d) for Extension of Exclusivity
Deadlines (the "Third Extension Motion") [Docket No.
525] requesting an extension of exclusivity to a date 45 days after
a final judgment was entered in the Novell Case, arguing again that
such an extension would allow an amended plan to reflect the
results of the trial which concluded on May 2, 2008 in the Utah
Court as to the amount of Novell's claim in the Novell Case. The
Third Extension Motion offered the enticement that "based on
feedback from prospective interested parties, the Debtors believe
that the entry of a
9
final judgment (and the commencement of the appellate process)
in the Novell [Case] will greatly facilitate the Debtors' ability
to sell, finance or recapitalize as a necessary basis for a plan of
reorganization" and "Once the appeal process [in the Novell Case]
is commenced, customers and potential investors can make reasonable
assumptions as to how long it will take to get a resolution on
appeal and investment decisions can be structured to take that
process into account". (Third Extension Motion at ¶ 10.) Over
Novell's and the United States Trustee's objections, the Court
granted the Third Extension Motion extending exclusivity to
December 31, 2008 [Docket No. 562].
(d) The Fourth Exclusivity Extension Motion
25. On December 30, 2008, the Debtors filed the Fourth Motion
by Debtors Under Section 1121(d) for Extension of Exclusivity
Deadlines (the "Fourth Extension Motion") [Docket No.
649] requesting an extension of the exclusivity period to file a
plan for an additional 16 days, offering the hope of a real Plan:
"Debtors simply need a few extra days to finalize the drafting
process and to insure that all comments and edits are complete
prior to actually filing and serving the documents". (Fourth
Extension Motion at ¶ 14.) Though the hearing on the Fourth
Extension Motion was originally scheduled for January 29, 2009,
after two continuances, the hearing was not held until March 30,
2009. The Court denied the Fourth Extension Motion at the hearing,
and exclusivity was terminated. (See Order Denying Fourth
Extension Motion.) [Docket No. 745]
ARGUMENT
A. Section 1112(b) Requires Conversion Upon Substantial or
Continuing Loss and Absence Of A Reasonable Likelihood of
Rehabilitation
26. Section 1112(b)(1) of the Bankruptcy Code provides:
Except as provided in paragraph (2) of this subsection,
subsection (c) of this section, and section 1l04(a)(3), on request
of a party in
10
interest, and after notice and a hearing, absent
unusual circumstances specifically identified by the court that
established that the requested conversion or dismissal is not in
the best interest of creditors and the estate, the court
shall convert a case under this Chapter to a case
under Chapter 7 or dismiss a case under this Chapter, whichever is
in the best interests of creditors and the estate, if the movant
establishes cause.
11 U.S.C. § 1112(b)(1) (emphasis supplied). Thus, where
"cause" is shown, the Court
shall convert a Chapter 11 case
to a Chapter 7 case upon the request of a party in interest absent
"unusual circumstances".
27. The 2005 amendments to section 1112(b)
reduced the bankruptcy courts' discretion to convert or dismiss a
Chapter 11 case by changing "may" to "shall". If cause for
conversion or dismissal exists, discretion is limited to those
instances in which the court makes specific findings that unusual
circumstances "establish that the requested conversion or dismissal
is not in the best interests of the creditors and the estate".
In re Broad Creek Edgewater, LP, 371 B.R. 752, 759 (Bankr.
D.S.C. 2007) (involuntary Chapter 7 debtor could not convert its
case to one under Chapter 11 because cause existed for conversion
or dismissal of the proposed Chapter 11 case); see also
In re Gateway Access Solutions, Inc., 374 B.R. 556, 560
(Bankr. M.D. Pa. 2007) (noting the statutory language change "from
permissive to mandatory" and finding cause existed to convert the
debtor's cases where the estate was diminishing rapidly at the
expense of creditors as extensive administrative costs from
professional fees were accumulating while the case lingered in
Chapter 11). Therefore, upon a showing of cause, the Court must
convert the Debtors' Chapter 11 cases to Chapter 7 cases "absent
unusual circumstances specifically identified by the court that
establish that the requested conversion or dismissal is not in the
best interests of creditors and the estate". 11 U.S.C. §
1112(b)(l).
28. Section 1112(b)(4) lists non-exclusive grounds for
conversion, including "substantial or continuing loss to or
diminution of the estate and the absence of a reasonable
11
likelihood of rehabilitation". 11 U.S.C. § 1112(b)(4)(A).
See In re AdBrite Corp., 290 B.R. 209, 215 (Bankr.
S.D.N.Y. 2003) (cause existed to convert the Chapter 11 cases in
part because of the debtor's negative postpetition cash flow and
inability to pay current expenses); In re 3868-70 White Plains
Road, Inc., 28 B.R. 515, 519 (Bankr. S.D.N.Y. 1983) (cause
existed to convert where the debtor's assets were fully
collateralized and it had negative cash flow and an inability to
pay current expenses).
29. The first prong of § 1112(b)(4)(A) requires a showing
of a "substantial or continuing loss to or diminution of the
estate". As noted in Collier, "If the estate has sustained a
substantial loss following the commencement of the case, or the
debtor is operating with a sustained negative cash flow after the
commencement of the case, these facts are sufficient to justify a
finding of 'substantial or continuing loss to ... the estate'".
See 7 Alan N. Resnick & Henry J. Sommer, Collier on
Bankruptcy, ¶ 1112.04[5][a] at 1112-34 (15th ed. rev'd
2008).
30. The second prong of § 1112(b)(4)(A) requires an
"absence of a reasonable likelihood of rehabilitation". As noted in
Collier, "the standard under section 1112(b)(4)(A) is not
the technical one of whether the debtor can confirm a plan, but,
rather, whether the debtor's business prospects justify continuance
of the reorganization effort". See Collier, ¶
1112.04[5][a] at 1112-36 (15th ed. rev'd 2008). See also
Quarles v. United States Trustee, 194 B.R. 94, 97 (W.D. Va.
1996) (no likelihood of rehabilitation where debtor was losing
money and only hope of reorganization depended on speculative
outcomes in pending litigation); In re Great Am. Pyramid
J.V., 144 B.R. 780, 792 (Bankr. W.D. Tenn. 1992) ("A
reorganization plan under chapter 11 must be more than a nebulous
speculative venture and must have a realistic chance of success
which would lead to rehabilitation, and if outside financing is
needed, it must be clearly in sight".) (emphasis in original);
In re Imperial Heights Apartments, Ltd., 18 B.R. 858,
863-864
12
(Bankr. S.D. Ohio 1982) (no "reasonable likelihood of
rehabilitation" where debtor's only asset was a potential
lawsuit).
31. "Rehabilitation" as used in section 1112(b)(4)(A) is not
synonymous with "reorganization". Instead, "Rehabilitation
signifies that the debtor will be reestablished on a sound
financial basis, which implies establishing a cash flow from which
current obligations can be met". In re Rundlett, 136 B.R.
376, 380 (Bankr. S.D.N.Y. 1992) (granting creditors' motion to
convert Chapter 11 case to Chapter 7 where debtor's use of estate
property resulted in continuing loss or diminution of the estate,
there was not a reasonable likelihood of rehabilitation and the
debtor would be unable to effectuate a plan) (citing In
re Kanterman, 88 B.R. 26, 29 (S.D.N.Y. 1988)) (affirming
conversion of Chapter 11 case to Chapter 7 upon creditors' showing
continuing diminution to the estate and absence of reasonable
likelihood of rehabilitation).
32. A debtor "should not continue in control of its business
beyond a point at which reorganization no longer remains
realistic," if creditor recoveries are eroding. In re AdBrite
Com., 290 B.R. at 215; In re Johnston, 149 B.R. 158, 161
(B.A.P. 9th Cir. 1992) (granting motion to convert debtor's Chapter
11 case to Chapter 7 where the debtor lacked the ability to
effectuate plan of reorganization because it had no income and
further delay would prejudice creditors by eroding their
position).
B. The Debtors Have Suffered Substantial and Continuing
Losses and Have No Reasonable Prospect of
Rehabilitation
33. In the present case, the Debtors have negative cash flow and
have operated at a net loss during the entire course of these
Chapter 11 cases. Even excluding reorganization items, the
cumulative net operating loss of the Debtors since the Petition
Date is $8,417,789.
13
34. The Debtors' premise that favorable outcomes in the IBM Case
and the Novell Case will cure their financial ills is pure
speculation at the expense of the creditors and has no relation to
whether the Debtors have a potentially successful business.
35. There is no profitable core around which to structure a plan
of reorganization. The Debtors' projections indicate that revenue
for the Debtors' traditional core businesses "are estimated to
decline at [a] 20% rate...". (Second Disclosure Stmt. at 40.) The
Debtors freely admit that they are not likely to have the liquidity
to sustain their operations for a prolonged period of time, The
Debtors' operations simply cannot fund a workable plan of
reorganization that takes into account realistic inputs and
outlays. Thus, the Debtors can offer no plan other than to ask
creditors to put their faith blindly behind some new speculative
business, entailing significant risk without any reasonable
likelihood of rehabilitation.
36. The Debtors have repeatedly proclaimed the existence of
"prospective interested parties", potential investors and
continuous negotiations with prospective purchasers but have yet to
produce a deal. If one were to believe the Debtors' description of
the expressions of interest, legions of potential investors should
have descended upon the Debtors as soon as the Debtors filed their
appeal in the Novell Case:
And then let's talk about the factor called reasonable
prospects for rehabilitation or reorganization. Well, you've seen
some prospects that you didn't think much about and I don't blame
you. They -- they didn't pan out. The York deal, the -- the SNCP
deal in its first iteration, we're not going to forward with either
one of those. But, what -- what you see is the tip of iceberg. You
don't see all the other deals that we didn't get to bring to the
Court and the other deals that are out there now just waiting like
ships in the harbor waiting to -- to come in to port when the
appeal is filed. If he were to testify, Mr. McBride would testify
about some different types of deals out there. There are merger
prospects. There are loans, strict -- just loans, financial deals.
(Transcript of September 16, 2008 Hearing at 14:2-16 (filed
September 26,2008).) [Docket No. 567]
14
However, the Debtors have not been overwhelmed with prospective
purchasers since the filing of their appeal in the Novell Case.
37. These Chapter 11 cases are no longer in the embryonic stage.
The Debtors have had more than a reasonable opportunity to achieve
rehabilitation. They have been unable to do so. Instead, for almost
20 months, during the Debtors' campaign of clumsy and
underdeveloped sale motions and plans, which have all been
withdrawn or dropped outright, the value of assets available to pay
creditors has eroded.
38. The Debtors admitted in the Second Disclosure Statement that
"[i]f the [Second Plan of Reorganization] is not confirmed, the
only viable alternatives are dismissal of the Chapter 11 [c]ases or
conversion to Chapter 7 of the Bankruptcy Code". (Second Disclosure
Stmt. at 45). The Second Plan of Reorganization will not be
confirmed. The conclusion is inescapable that dismissal or
conversion are the only viable alternatives.
39. Liquidation of the Debtors' assets is the only reasonable
course for this case to take, and it can be done more cheaply and
efficiently by a Chapter 7 trustee than by the Debtor and Chapter
11 professionals. For all these reasons, IBM respectfully requests
that the Court convert these Chapter 11 cases to Chapter 7
cases.
NOTICE
40. Notice of this motion has been provided to the following
parties or, in lieu thereof, to their counsel, if known: (a) the
Debtors, (b) the Office of the United States Trustee for the
District of Delaware; (c) the creditors holding the 20 largest
unsecured claims against the Debtors' estates (on a consolidated
basis); (d) all creditors and all equity security holders of SCO
Group and (e) all parties who have filed a request for notice under
Bankruptcy Rule 2002. In light of the nature of the relief
requested herein, IBM respectfully submits that no further notice
of this motion is required.
15
CONCLUSION
For the reasons set forth above, IBM respectfully requests that
the Court enter an order in the form attached as Exhibit "A"
converting these Chapter 11 cases to Chapter 7 cases and granting
such other relief as is just and proper.
Dated: May 11, 2009
POTTER ANDERSON & CORROON LLP
By:
(signature)
Laurie Selber Silverstein (No. 2396)
Gabriel R. MacConaill (No. 4734)
[address]
[phone]
[fax]
- and -
CRAVATH, SWAINE & MOORE LLP
Richard Levin
David R. Marriott
[address]
[phone]
[fax]
Of Counsel:
INTERNATIONAL BUSINESS MACHINES CORPORATION
Alec S. Berman
[address]
[phone]
Attorneys for Creditor International Business Machines
Corporation
16
1 |
For this history generally, see e.g.,
Debtor-in-Possession Monthly Operating Reports of SCO Operations,
Inc. Docket Nos. 358, 427, 450, 482, 506, 517, 551, 569, 585, 686,
687, 692, 721 and 737. |
2 |
For this history generally, see Declaration of Darl
C. McBride, Chief Executive Officer of the Debtors, in Support of
First Day Motions (the "McBride Decl.") [Docket No. 31]
and Disclosure Statement in Connection With the Debtors' Amended
Joint Plan of Reorganization (filed January 8, 2009) (the
"Second Disclosure Statement") [Docket No. 655]. |