Better off dead. Don't let Enron come back to life:
Employees' clout may help Enron's quest to rebuild
By ERIC BERGER
Copyright 2002 Houston Chronicle
During another withering hearing in a New York bankruptcy court last week, in a rare personal moment, Enron's lead attorney explained what he tells those who ask how the case is going:
Every day delivers a fresh nuclear detonation, Martin Bienenstock said, and that's before the conventional weaponry hits.
Enron may have gained an unlikely ally, however, with Thursday's surprising decision by U.S. Trustee Carolyn Schwartz to appoint a committee to represent former employees in the bankruptcy case.
The move could aid Enron in its formidable quest to avoid liquidation and emerge from bankruptcy court as a slimmed-down company built around pipelines and power generation.
"I don't think there's any former employees that want to see more employees lose their jobs," said David McClain, a lawyer for an ad hoc group of former employees that sought the appointment of the committee.
"I think we're going to be a lot less mercenary in that regard."
Experts say the employees committee is likely to add a combustible element to the bankruptcy case by bringing different viewpoints to the table.
This will change the dynamic between the official committee to represent all creditors, including former employees, and Enron's attorneys. In court decisions, Judge Arthur Gonzalez has shown considerable deference to the creditors committee. Gonzalez must now show some of the same deference to the employees committee on matters pertaining to employees.
Effectively, the creditors committee now owns Enron. The company's new chief executive, turnaround specialist Stephen Cooper, was by and large their pick, and he generally works for them, even Enron officials acknowledge.
Lawyers familiar with the participants say the creditors committee, made up of banks and large companies to whom Enron owes the most money, and one former employee, is divided over whether Enron should be sold off piece-by-piece.
By selling now, the creditors could cut their losses and get more cash up front instead of receiving stock in a reorganized company that might turn a profit down the road.
Whether the creditors committee will push for liquidation could become clear as soon as next month, when Enron is expected to ask Gonzalez for an extension on the time it has to file a plan of reorganization. The present deadline is April 2.
"That will be the first real pulse that we can take of the case, whether the creditors oppose the extension," said Jack Williams, a professor at the Georgia State University College of Law and scholar-in-residence at the American Bankruptcy Institute.
"If they do, that signals the creditors committee is pushing very hard for some form of liquidation, because a liquidation plan could be made over the weekend."
The presence of eight banks on the 15-member creditors committee typically indicates a company will be eventually forced to liquidate, Williams said. Another factor against Enron is that, if old management is kicked out early in a bankruptcy, as has happened with Enron, seven out of 10 times a company will liquidate.
In addition to possibly butting heads with the creditors committee over Enron's ultimate fate, the employees committee will give its constituents teeth in the fight for cash, bankruptcy experts said. Enron owes its creditors many billions of dollars more than it can pay them.
"It will indeed give the employees stature in the case, as well as a platform for issues they are interested in," said Scott Baena, an attorney for the Severed Enron Employees Coalition who also pushed for the committee.
In addition to asking Gonzalez to boost the $4,500 severance payments fired employees received, the committee is also expected to seek compensation for 401(k) accounts that fizzled along with Enron's stock, lost deferred retirement payments and other legal options.
One such alternative, attorneys for former employees said, was citing Enron for violating the Worker Adjustment and Retraining Notification Act, which requires employers to give affected employees notice at least 60 days in advance of a mass layoff.
The penalty for Enron would be 60 days' compensation. No one but an employees committee would bring such an issue to the table, McClain said.
The bankruptcy code typically limits the role of employees in a case. Now, however, the committee will have the power to retain its own lawyers and financial advisers at Enron's expense.
If a constituency has a committee, the group almost always fares appreciably better than others without such representation, said Lynn Lopucki, a University of California at Los Angeles law professor who has studied the issue.
"It's why people fight so desperately to have other committees formed in a case," he said. "The lesson is, getting a committee yields power. It's crucial."
Lopucki studied about two dozen bankruptcy cases between 1980 and 1988 in which a committee was appointed to represent stockholders, normally the last in line to be paid. In every single case such a committee was appointed, the stockholders received some form of compensation.
Enron's case is somewhat unusual in that former employees almost universally own large amounts of the company's now virtually worthless stock in their 401(k) accounts. This was a main reason Schwartz said she appointed the committee.
The battle over whether to liquidate, and how employees will share the sold-off assets, are just two of the story lines set to play out in coming days and months.
This week, Gonzalez is expected to rule whether Enron can maintain its system of collecting money from all of its subsidiary units, including Enron North America, and then disbursing the money as it sees fit.
Creditors of Enron N.A., which owned the company's once-profitable trading entity, are seeking to stop payments back to Enron Corp. From Dec. 2, when Enron filed for bankruptcy, through Jan. 31, Enron N.A. sent $632 million to the parent company for disbursement.
The ruling is important because, if Gonzalez approves stopping Enron N.A.'s payments, it suggests he may go along with creditors who want to break the subsidiary's bankruptcy away from the rest of the corporation, possibly giving themselves more value at the expense of other creditors.
By month's end, Gonzalez is also expected to hear the Houston Astros' motion to force Enron to give up its contract to name Enron Field.
Early March offers a hearing on another heated issue, whether to appoint an examiner or trustee to run Enron Corp.
Disgruntled creditors fed up with news about Enron's off-the-books partnerships, and document shredding by Enron and its auditor, Arthur Andersen, want to wrest control of the company from its board in favor of an independent trustee.
Cooper, a corporate restructuring expert, was brought in to blunt that effort and restore trust, said Enron lawyer Brian Rosen. Yet during recent hearings, attorneys for creditors seeking a trustee have not been impressed.
"Judge," said Wiser Oil Co. attorney Deborah Reperowitz, in an emblematic comment, "We simply can't be expected to take the word of the debtors." |
