SCO bankrupt on eve of trial

On the eve of trial SCO have filed for chapter 11 bankruptcy. The outcome of the slander of title suit against Novell had been reduced to deciding how much SCO owed Novell as a result of selling UNIX licenses to Sun and Microsoft. According to their agreement Novell would receive the license revenue and give SCO a administration fee of 5%. SCO returned none of the money received from Sun and Microsoft to Novell. According to SCO they have filed for bankruptcy in order to protect their assets.

Shortly after the announcement SCO's stock price fell from 61 cents to 37 cents before trading was stopped. Previously there was a threat of delisting after the stock fell below one dollar, but the stock price had rose to about $1.50 preventing delisting. After the judge threw out most SCO's case against Novell the share price fell to 37 cents. SCO produced a press release describing their disappointment with the decision. IBM has not yet filed against other organisations who helped fund SCO, although there has been speculation that they might attempt to recover losses incurred due to SCO.

[update]
It appears that SCO has used bankruptcy laws to automatically stay the Novell litigation. On filing for chapter 11 bankruptcy the company concerned is meant to be reorganised to avoid liquidation. However, if Novell are awarded anything like what they were given by Sun and Microsoft it will be more than the value of all SCO assets. Given that there really is no chance of reorganisation, and as mentioned above we are on the eve of trial with Novell, it looks like SCO are trying to use bankruptcy laws in bad faith.

This is a very serious matter. A slashdot reader points to this web page which details bad faith bankruptcy filings. "One area ripe for a bad faith dismissal is when the debtor is using a bankruptcy filing as a litigation tactic to forestall litigation." Novell will almost certainly challenge the bankruptcy stay as filed in bad faith. Once there is a filing of bad faith the remedy may be far worse for SCO, including sanctions against its lawyers.

"The ultimate sanction that the court may impose is an order barring the discharge, in a later bankruptcy case, of debts that were dischargeable in the case dismissed, frequently referred to as "dismissal with prejudice." A permanent bar to discharge is sometimes referred to as "the capital punishment of bankruptcy" for it removes the major benefit of the bankruptcy system. For this reason, this sanction is rarely imposed and is warranted only by particularly egregious misconduct that demonstrates not only bad faith but seriously prejudices creditors."