decoration decoration
Stories

GROKLAW
When you want to know more...
decoration
For layout only
Home
Archives
Site Map
Search
About Groklaw
Awards
Legal Research
Timelines
ApplevSamsung
ApplevSamsung p.2
ArchiveExplorer
Autozone
Bilski
Cases
Cast: Lawyers
Comes v. MS
Contracts/Documents
Courts
DRM
Gordon v MS
GPL
Grokdoc
HTML How To
IPI v RH
IV v. Google
Legal Docs
Lodsys
MS Litigations
MSvB&N
News Picks
Novell v. MS
Novell-MS Deal
ODF/OOXML
OOXML Appeals
OraclevGoogle
Patents
ProjectMonterey
Psystar
Quote Database
Red Hat v SCO
Salus Book
SCEA v Hotz
SCO Appeals
SCO Bankruptcy
SCO Financials
SCO Overview
SCO v IBM
SCO v Novell
SCO:Soup2Nuts
SCOsource
Sean Daly
Software Patents
Switch to Linux
Transcripts
Unix Books
Your contributions keep Groklaw going.
To donate to Groklaw 2.0:

Groklaw Gear

Click here to send an email to the editor of this weblog.


Contact PJ

Click here to email PJ. You won't find me on Facebook Donate Paypal


User Functions

Username:

Password:

Don't have an account yet? Sign up as a New User

No Legal Advice

The information on Groklaw is not intended to constitute legal advice. While Mark is a lawyer and he has asked other lawyers and law students to contribute articles, all of these articles are offered to help educate, not to provide specific legal advice. They are not your lawyers.

Here's Groklaw's comments policy.


What's New

STORIES
No new stories

COMMENTS last 48 hrs
No new comments


Sponsors

Hosting:
hosted by ibiblio

On servers donated to ibiblio by AMD.

Webmaster
Another SCO Creditor Sells Its Claim to Argo
Wednesday, October 13 2010 @ 02:15 AM EDT

Tech Marketing Ink of Orem, Utah, a creditor in the SCO bankruptcy, has sold its claim to Argo Partners. I guess it figured a bird in the hand and all that. At this point, the company may feel that there's no getting blood from a stone and the likelihood of getting paid by SCO in bankruptcy court is slim. You can sell your claim if anyone will buy it, usually for a price that may be less than you are owed, but at least you have something. In real money. In a real world.

The company does presentations, among other things. I can't help but wonder if they did the presentations that SCO used with analysts. That would be ironic, to have it all end up like this.

But why would Argo buy this claim? I can't imagine, so let's research possibilities. The claim is modest, in the bigger picture, for $3,000. But we've seen Argo before.

First, here is the filing:

10/11/2010 - 1179 - Transfer/Assignment of Claim. Transfer Agreement 3001 (e) 2 Transferor: Tech Marketing Ink To Argo Partners. Filed by Argo Partners. (Gold, Matthew) (Entered: 10/11/2010)

You find Tech Marketing Ink listed on the May 2009 list of creditors, and the company is also listed on Schedule F [PDF; as text], which SCO filed in October of 2007, but I don't see it on the original list SCO filed in September 2007, when it first applied for bankruptcy protection. In general, that happens when a company files all the creditors it can think of, but sometimes others show up later with a claim the company forgot about.

Argo Partners has bought other claims in the past. If you go down the list of filings in our SCO Bankruptcy Timeline page, searching for Argo, you'll see at least four others. It started buying them up in 2007, when it made more sense. But now? I can't help but wonder. Who are they, and why do they want these claims?

I'll save you the trouble. Here's the list of claims it bought prior to the latest one, and if you wish to read them, they are on the Timeline page:

175 - Filed & Entered: 11/01/2007
Transfer/Assignment of Claim
Docket Text: Transfer/Assignment of Claim. Transfer Agreement 3001 (e) 1 Transferor: Bynari, Inc.(Amt. $5,209.58) To Argo Partners. Filed by Argo Partners. (Gold, Matthew)

361 - Filed & Entered: 02/26/2008
Transfer/Assignment of Claim
Docket Text: Transfer/Assignment of Claim. Transfer Agreement 3001 (e) 1 Transferor: Main 10(Amt. $2,000.00) To Argo Partners. Filed by Argo Partners. (Gold, Matthew)

436 - Filed & Entered: 04/09/2008
Transfer/Assignment of Claim
Docket Text: Transfer/Assignment of Claim. Transfer Agreement 3001 (e) 2 Transferor: Randd Strategic Solutions LLC To Argo Partners. Filed by Argo Partners. (Gold, Matthew)

[438] 10-Apr-2008 Transfer/Assignment of Claim. Transfer Agreement 3001 (e) 1 Transferor: Mirage (Amt. $37,017.39) To Argo Partners. Filed by Argo Partners. [Referenced by [448].]

There's another mention of Argo on that Timeline page, #423, but #436 is the amended version of #423, so it's one sale, not two.

Here's some info on Argo Partners, from BusinessWeek, as well as some detail on founding principal Michael C. Singer. The company's web site says they buy up the assets of distressed, usually bankrupt, companies:

Argo Partners is an investment firm that specializes in purchasing potential future cash flows of distressed, often bankrupt, entities. Typical investments take the form of trade receivables from, and bank loans to, bankrupt companies (i.e. “distressed paper”).

We specialize in distressed companies across many industries. The credits we have been involved with include small and middle-market private companies, as well as larger public companies.

Depending on the stage of the economic cycle, we have invested in retailing, oil and gas, transportation, financial services, insurance, health-care, technology, metals and refining, and real estate.

Claims are not assets, not in the traditional sense, but in bankruptcy they can be valuable. Here's a paper that explains the business of buying up claims, On the Nature of the Transferred Bankruptcy Claim [PDF], and here's one reason some do it, mentioned in footnote 7:
7. See, e.g., Simeon Gold & Daniel Holzman, Shopping for Distressed Companies, METRO. CORP. COUNSEL, Feb. 2008, at 42 (“If a purchaser desires to strengthen its position in the acquisition of an entire company under a plan of reorganization, there are steps it can take. The purchaser can acquire a stake in the ‘fulcrum’ securities of the bankrupt seller (i.e., those obligations of the seller that, based on the likely valuation of the seller's business by the bankruptcy court, are likely to receive equity in the reorganized business).”); see also Michelle M. Harner, Trends in Distressed Debt Investing: An Empirical Study of Investors’ Objectives, 16 AM. BANKR. INST. L. REV. 69, 82 (2008) (citing study results illustrating firm propensities to pursue exchanges of debt for equity).
Of course, aside from any dreams of equity, with a claim in your pocket, it gives you a voice in bankruptcy court, and you can oppose a reorganization plan. Here are two more footnotes:
13. See 11 U.S.C. § 1109(b) (2009) (“A party in interest, including the debtor, the trustee, a creditors’ committee, an equity security holders’ committee, a creditor, an equity security holder, or any indenture trustee, may raise and may appear and be heard on any issue in a case under this chapter.”). For example, claim traders looking to expedite returns on their investments may use the right to be heard conferred by Bankruptcy Code section 1109(b) to support a piecemeal sale of the debtor. See Circuit City Unplugged: Why Did Chapter 11 Fail to Save 34,000 Jobs?: Hearing Before the Subcomm. on Commercial and Administrative Law of the H. Comm. on the Judiciary, 111th Cong. 13-14 (2009) (testimony of Harvey R. Miller, Senior Partner, Weil, Gotshal, & Manges, LLP), available at http://judiciary.house.gov/hearings/pdf/Miller090311.pdf (“Distressed debt traders and hedge funds have different objectives than those of vendor/suppliers. They are motivated by quick and sizeable returns on their investment. Because their entry price usually is much lower than the face amount of the acquired debt, they are more apt to favor the sale and dismemberment of a debtor, if it will yield faster and greater recoveries based upon the costs of purchasing claims. Unless they are extending loans to own the debtor, a process that gained some favor in the mid-2000s, there is little or no interest in the rehabilitation of the debtor.”).

14. For example, claims purchasers can vote down a debtor’s proposed plan of reorganization to maximize distributions paid out on their claims. See Kevin J. Coco, Empty Manipulation: Bankruptcy Procedure Rule 2019 and Ownership Disclosure in Chapter 11 Cases, 2008 COLUM. BUS. L. REV. 610, 615 (2008) (“It is these active investors who, because they have the ability to shut down a debtor’s ability to reorganize, present the greatest threat to the active rehabilitation and reorganization of debtors, which are the two primary goals of Chapter 11.”).

So, claims purchasers aren't necessarily trying to help the debtor, just making a buck for themselves. No offense, but it sounds a teensy bit like vultures. I confess, bankruptcy court is so much worse than anything I ever could have imagined. My favorite sentence from that paper:
Although the practice of claims trading can introduce complications into Chapter 11 proceedings that would not arise otherwise, it is not unlawful.
Not unlawful. What a low bar.

But there's more: claims buyers can also offer the debtor money as a loan so as to take over the company. Hmm. That might explain why Argo would buy a claim now, when SCO is selling off essentially all its assets. One way or another, it looks like Argo has been getting into position for something since 2007.


  


Another SCO Creditor Sells Its Claim to Argo | 210 comments | Create New Account
Comments belong to whoever posts them. Please notify us of inappropriate comments.
Corrections
Authored by: bprice on Wednesday, October 13 2010 @ 02:21 AM EDT
If needed.

---
--Bill. NAL: question the answers, especially mine.

[ Reply to This | # ]

News Picks
Authored by: bprice on Wednesday, October 13 2010 @ 02:23 AM EDT
Please remember to link to the News Pick.

---
--Bill. NAL: question the answers, especially mine.

[ Reply to This | # ]

Off Topic
Authored by: bprice on Wednesday, October 13 2010 @ 02:24 AM EDT
On Topic is off limits.

---
--Bill. NAL: question the answers, especially mine.

[ Reply to This | # ]

Everything COMES here
Authored by: bprice on Wednesday, October 13 2010 @ 02:25 AM EDT
Thanks for helping with the Comes collection.

---
--Bill. NAL: question the answers, especially mine.

[ Reply to This | # ]

Another SCO Creditor Sells Its Claim to Argo
Authored by: Anonymous on Wednesday, October 13 2010 @ 02:34 AM EDT

My favorite sentence from that paper:

Although the practice of claims trading can introduce complications into Chapter 11 proceedings that would not arise otherwise, it is not unlawful.

The general rule in a common law tradition country is that which is not expressly prohibited, is permitted -- that is, one may do acts which are not unlawful. The author of that paper only restates a well-known understanding. Personal value judgments as to what is 'tasteful' or 'proper' are out of scope in proceedings so strongly structured as bankruptcy is ...

[ Reply to This | # ]

Maybe they're just really, really dumb
Authored by: Anonymous on Wednesday, October 13 2010 @ 03:56 AM EDT
As well as the debts, they've bought the line that all our code base are belong
to SCO?

If so, well, I wish them all the success that they deserve.

[ Reply to This | # ]

Another SCO Creditor Sells Its Claim to Argo
Authored by: Anonymous on Wednesday, October 13 2010 @ 06:37 AM EDT
offer the debtor money as a loan so as to take over the company
Didn't Ralph already do just that?

Can someone else now come in and offer a new loan and get the bankruptcy court to grant them super-ooper-dee-dooper priority over Ralph's super priority?

[ Reply to This | # ]

Real world vs. but-for world?
Authored by: gumnos on Wednesday, October 13 2010 @ 07:19 AM EDT
You can sell your claim if anyone will buy it, usually for a price that may be less than you are owed, but at least you have something. In real money. In a real world,

Next up, Dr. Botosan testifies about the but-for world in which Argo didn't sell the rights to the claim...

-gumnos



[ Reply to This | # ]

There is nothing wrong with Argo's business model
Authored by: Anonymous on Wednesday, October 13 2010 @ 08:24 AM EDT

So, claims purchasers aren't necessarily trying to help the debtor, just making a buck for themselves. No offense, but it sounds a teensy bit like vultures

No, it doesn't. All honest workers are in business to make a buck for themselves. The only people who never have to are the people who inherited wealth. Personally, I have more respect for Argo.

If you have a claim against a bankrupt entity, you have a choice (thanks to companies like Argo). You can:

  1. Wait for bankruptcy proceedings to pay out on your claim. This could take several years, and there's no guarantee that you'd ever get anything anyway.
  2. Sell your claim to a company like Argo. They'll pay you a lot less than you are owed, but that might still be a good deal for you, because you get the money right away and you eliminate the uncertainty of the legal system.

Argo is in business to provide a useful service. If it does a good job, it will make a modest profit. Such companies make the world a better place for all of us.

[ Reply to This | # ]

Collection agencies do this all the time
Authored by: Anonymous on Wednesday, October 13 2010 @ 08:57 AM EDT
Consumer debt collection agencies do this all the time- they will buy a
company's uncollected debts, for example a doctor's office for cents on the
dollar (often 10% of the value)

They do this because if they can get 10% of the people to actually pay, they
make back their investment. If they get 20% to pay, they make a profit.

The discount supposedly accounts for the risk of non-payment, and for the costs
that the doctor would incur to collect the debt, such as office time calling the
debtor.

It seems odd to do this in bankruptcy, but overall this is not uncommon.

--Jpvlsmv (not logged in)

[ Reply to This | # ]

A Win-Win
Authored by: YurtGuppy on Wednesday, October 13 2010 @ 10:03 AM EDT
Marvelous! The creditor gets some money and the speculators get to speculate.

I'm all for it.



---
just swimming round and round

[ Reply to This | # ]

"But why would Argo buy this claim? "
Authored by: Yossarian on Wednesday, October 13 2010 @ 02:22 PM EDT
I can think about two possible explanation:
1)PJ's reference to "vultures".

2) A front to somebody who wants the litigation to continue.
Let's say that Tech pays about a penny for a dollar of claims.
For $10,000 it can buy a $1,000,000 of claims and be *the*
major creditor, aside from Novell and IBM. When the creditors
will finally manage to force a serious discussion, in
bankruptcy court, on the wisdom of the endless lawsuits, all
creditors will have a say. This front can come with a line
like: "the motives of IBM and Novell are not clean because
they are a part of the litigation. But we, who have no such
conflict of interests, think that the lawsuits are a great
idea and we want them to continue". The more SCO debt this
front will have, the stronger the argument will ring.

What do y'all think?

[ Reply to This | # ]

I don't understand ...
Authored by: rsteinmetz70112 on Wednesday, October 13 2010 @ 02:49 PM EDT
... why people are so put off by Argo.

It seems they are offering a reasonable exchange, some money now for a debt you
may never collect. They aren't forcing anyone to sell debt to them.

Argo is willing to accept the risk that they may get nothing, and most of the
time probably don't get anything. Occasionally they may make a big profit if a
White Knight shows up and purchases a distressed company at a premium or if
there is a debt for equity swap and they get stock in a new viable company.

They increase the probability of that happening by buying into a lot of
bankruptcies. Since they are in that business they probably also have a good
idea of the probability of a profit and price debt accordingly.

I've been a creditor in several bankruptcies, usually for small amounts and have
never gotten anything, except once when we got paid in full, months later as the
company emerged from Chapter 11. If I had sold all of those debts, good an bad,
I may have come out ahead in the end, I don't know.

Argo may try to maximize their return by actively monitoring and participating
in the creditors committee. Given their familiarity with the process may be
effective in increasing the recovery of the other creditors in their class.

If I understand correctly in Delta Airlines' last bankruptcy creditors were
issued new stock and have done pretty well.

And as I understand what happened in the Adelphia bankruptcy an investor bought
a lot of mostly worthless bonds to become a major creditor and a force in the
resolution, forcing the assets to be sold off to other companies in the
industry, recouping a large profit for himself, but also enhancing the recovery
for all of the other creditors.

Both of those examples are fairly large companies with substantial physical
assets and ongoing business. What anyone hopes to gain for SCO is a mystery to
me. If I was a creditor I'd probably sell my debt in a heartbeat.

The only potential I see for recouping any debt would be either a large company
seeing value in the company or potentially some stock for debt deal. The stock
would not to be very attractive since SCO was already winding down it's business
before Darl decided to throw his Hail Mary last ditch effort to make a buck for
himself.

---
Rsteinmetz - IANAL therefore my opinions are illegal.

"I could be wrong now, but I don't think so."
Randy Newman - The Title Theme from Monk

[ Reply to This | # ]

Argo founding principal Michael C. Singer
Authored by: pcrooker on Wednesday, October 13 2010 @ 09:03 PM EDT
Any relation to Stuart Singer?

[ Reply to This | # ]

This is just a tax sale
Authored by: Anonymous on Thursday, October 14 2010 @ 05:40 AM EDT
In order to take the loss on your taxes you must first have a closing
transaction. Argo is in the business of providing them, they probably paid a
dollar for the debit and charged them a marked up transfer fee to make money.
Anything they get from the court is a bonus.
bobm

[ Reply to This | # ]

New August MOR: $7.1M postpetition debt
Authored by: Anonymous on Thursday, October 14 2010 @ 09:35 AM EDT
Yes folks that is postpetition debt. You know when the company is running in
bankruptcy and supposed to be on a cash basis and not supposed to go into the
red because there is really no coming back.

What a farce.

And how it relates to the current topic - think any prepetition debtor are going
to get paid ? They are way behind the postpetition debtors who are going to get
paid out of trustee-Cahns bond if nothing else.

[ Reply to This | # ]

Nothing to see here
Authored by: Anonymous on Thursday, October 14 2010 @ 01:10 PM EDT
This is perfectly normal. Argo are providing a valuable service, which is why
this creditor has decided to pay for it. It's like buying insurance - you pay a
fixed amount (in this case, the difference between the claim amount and what
Argo paid for it) and in exchange you are protected from a possible loss (in
this case, SCO never paying the debt).

As for why Argo would do it, they do it because they think the chance of SCO
paying is high enough for their expected gain to be positive. We don't know what
Argo paid for this claim (at least, I can't see that information in the filing),
but it is probably a very small amount. If they think there is a 10% chance of
SCO paying the full debt (and no chance of partial payment, to simplify the
maths) and the creditor was willing to sell the debt for less than $300, then it
was a good deal for Argo. It is also a good deal for the creditor, since they
get some certainty out of it, which is valuable in itself (and makes your
accounting easier - having doubtful debts on your books is messy).

[ Reply to This | # ]

Groklaw © Copyright 2003-2013 Pamela Jones.
All trademarks and copyrights on this page are owned by their respective owners.
Comments are owned by the individual posters.

PJ's articles are licensed under a Creative Commons License. ( Details )