Hi AJ,
Here's the latest I've found.
Bankruptcy experts point out that insolvency is not required for a Chapter 11 filing
To Sell Itself, Andersen Might Resort To Chapter 11 First
NEW YORK (Dow Jones)--If Arthur Andersen LLP is to be acquired by Deloitte Touche Tohmatsu (X.DET), the transaction would have to be structured so that Deloitte - or any buyer, for that matter - is protected from Andersen's legal problems.
To make itself a more attractive merger candidate, Andersen could file for Chapter 11 bankruptcy protection as a way to fence off liabilities to make sure Enron Corp. (ENRNQ) creditors and shareholders who are suing Andersen can't pursue claims against Deloitte.
In such a proceeding, Andersen would likely submit a Chapter 11 plan of liquidation seeking an injunction that prevents plaintiffs from suing the entity - or entities - that buy its assets.
"The process that is being suggested for Andersen is feasible, and it's in common use," said Richard Tilton, a New York bankruptcy lawyer and author of the book "Bankruptcy Business Acquisitions." "It's a method that many buyers prefer."
In the Andersen case, Deloitte or any other buyer would need assurance from the bankruptcy court that it wouldn't be dragged down by the enormous pile of litigation facing Andersen. In other industries, companies have gone the route of bankruptcy acquisitions to protect themselves from asbestos-related liability.
In addition, any buyer of Andersen would want to make sure it's off the hook in terms of criminal liability.
Tilton said the Justice Department, which reportedly has threatened to indict Andersen, would need to play a role in a potential buyout of the firm. Andersen ultimately could be fined steeply if the government brings obstruction-of- justice charges for destruction of Enron documents.
"The government would absolutely be at the table, because the buyer would want to know that it's not going to be directly or indirectly involved in any criminal process," Tilton said.
In any event, Andersen, which has a lost a number of prominent clients, might need to head quickly to bankruptcy court to ensure that its business remains attractive to potential buyers.
Bankruptcy lawyer Chester Salomon said a prepackaged bankruptcy plan for reorganization could be too time-consuming because it requires approval by creditors.
"If there's limited time, it seems like the better way is for Andersen to file the Chapter 11 petition and then immediately move to sell the assets citing a business urgency to do so," said Salomon, a partner with Salomon Green & Ostrow in New York.
The money derived from the sale of assets would go into a trust fund, which would handle the Enron-related liability. Plaintiffs in the Enron litigation could object if they believe the sale price is unreasonable. However, objections cause delays, and further declines in Andersen's business could make it less attractive to Deloitte or any other buyer, especially if more clients bail out or managers leave, Salomon said.
Bankruptcy experts point out that insolvency is not required for a Chapter 11 filing. Andersen, which could maintain a strong business even with the loss of high-profile clients, must only show that it needs protection of the bankruptcy court while it reorganizes or liquidates its assets.
"The pendency of lawsuits in many jurisdictions seeking hundreds of millions of dollars is, on its face, sufficient for them to seek Chapter 11 relief," Tilton said.
The fact that Andersen is structured as an "LLP," or limited liability partnership, also wouldn't hinder a Chapter 11 filing. While the LLP designation shields individual partners from liability, the partnership itself can turn to bankruptcy court for protection the same way a corporation can, lawyers say. |
