Today was the bankruptcy hearing regarding SCO's bonuses to themselves and their reorganization plan, or whatever they plan to try next, and happily we had two eyewitnesses there. Our deep thanks to them both. Here's the scoop from our first reporter there:
Ryan Tibbits is here from SCO.
Agreement on bonus payments. SCO will refile with "much" more disclosure. It will be subject to objection.
Buyout--Deal is being renegotiated. SCO will not refile until it is complete. Sale of assets--not a loan. US Trustee objects to sale of IP assets SCO does not own. May seek to appoint "independent fiduciary."
He is concerned about the status of this case.
Adjourned at 2:20
I told you the worm had turned. If the US Trustee seeks to appoint an independent fiduciary, SCO's universe spins a different way. Right now, SCO is a Debtor in Possession. They get to row their own boat. I'm not sure what is meant by independent fiduciary, but I'll show you some possibilities. Oh, and I hear there was a reporter there from Bloomberg.
Update 2: An anonymous reader found this case where a fiduciary was appointed, and it gives us a clue.
Here is some information on what it might mean:
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.
I'll have a better idea when we get the transcript tomorrow or the next day, but at least what he means is that he is worried about SCO's reorganization schemes and may wish to take some or all control away from the folks rowing that rowboat. That same page of Bankruptcy Basics also explains what a reorganization plan should be like and ends like this:
Any party in interest may file an objection to confirmation of a plan. The Bankruptcy Code requires the court, after notice, to hold a hearing on confirmation of a plan. If no objection to confirmation has been timely filed, the Bankruptcy Code allows the court to determine whether the plan has been proposed in good faith and according to law. Fed. R. Bankr. P. 3020(b)(2). Before confirmation can be granted, the court must be satisfied that there has been compliance with all the other requirements of confirmation set forth in section 1129 of the Bankruptcy Code, even in the absence of any objections. In order to confirm the plan, the court must find, among other things, that: (1) the plan is feasible; (2) it is proposed in good faith; and (3) the plan and the proponent of the plan are in compliance with the Bankruptcy Code. In order to satisfy the feasibility requirement, the court must find that confirmation of the plan is not likely to be followed by liquidation (unless the plan is a liquidating plan) or the need for further financial reorganization.
Update: We have a second report now, a bit longer, from Craig:
They started off listing the matters that were withdrawn which we already knew. Mr. McMahon then went over what information SCO was going to provide the US Trustee's office regarding the bonuses and incentives so that they can decide on what is fair to pay. He was reading off his list faster than I could write so this is by no means a complete list and I might paraphrase a bit. He basically wants all the background info on the bonuses, what were they historically, who makes the judgments on how they are awarded, he wants the date the metrics were set and whether they were later altered, he wants the individual amounts the officers got and the aggregate amounts for the others inside the company and he wants them to refrain from paying the second quarter 2008 bonuses until everything is sorted out and approved. Like I said, there was more than that but the gist of it was that he wants all the details surrounding these bonuses.
Mr. Spector then spoke for SCO and started off apologizing to the judge that they were not here to further the goal of realizing a restructuring plan, but just to give a status report. They didn't have any of the documents they promised to bring because as they were drawing them all up, the deal changed. They are drafting a new MOU with new terms and so everything has to be redone. He promises they'll really have it done by the next hearing. He says it's an entirely different deal in that the new deal will be an asset purchase and not a loan. He said he's learned from past mistakes and is writing it up so that it won't have to endure so many objections. He said he didn't dispute the validity of many of the objections to the first SNCP deal. If this new deal goes through, they will have plenty of cash to pay their creditors with interest and have cash or cash reserves for paying future debts. He's waiting until the deal is done before making full disclosures. He's not going to leave any loose ends this time. He mentions that SCO may need an extension to get everything prepared and do due diligence.
Mr. Levin from IBM then gets up and says he may have an issue if SCO needs an extension. He said that the due diligence report was due at this hearing already and that even though the deal is changing, it should not require more than the five weeks they have before the next hearing.
Mr. Lewis also says that he really hopes everything comes together before the next hearing so that it's not another "fire drill".
Mr. McMahon then gets up to say that the former York deal was basically a plan to sell IP that they didn't own and he wants to make sure that this new deal is clear about what is being sold (since it is an asset purchase). He also mentions SCO's history of financial losses and that he may be thinking of recommending to appoint an independant fiduciary for SCO.
I think the US Trustee's office is really starting to "get" SCO and their shenanigans. It will be interesting to see SCO's new MOU with SNCP and what SCO has that is so valuable that they'll soon have plenty of cash to make everyone happy.
It was all over in 20 minutes flat. It looks like the next hearing might be a bit more substantive if they really get this deal drawn up in time and it gets to be discussed (that's what I thought a month ago for *this* hearing), but we'll see....
Update 3: There is now a report in the Deseret Morning News from Steven Church, the Bloomberg reporter:
The U.S. Trustee monitoring SCO's case for the Justice Department may demand that the company be taken over by an independent fiduciary if the talks with Stephen Norris fail to deliver a reorganization plan. This is the company's third attempt to negotiate a way out of bankruptcy, Joseph McMahon Jr., an attorney with the U.S. Trustee's office, told Gross.
"I don't think this case can take a fourth chapter," McMahon said.
Agreed. But how about a 7th?