But, What Will We Do Without SCO?

The saga of SCO v. Linux, known variously as SCO v. Novell, SCO v. IBM, SCO v. Everybody and their Mother, may be coming to a close. Yes, we know this comes as a shock — if anyone needs a moment to compose themselves, or, you know, dig out a case of Dom, we'll wait — but it may well happen faster than any of us ever expected.

The reason for this startling pronouncement dates back to 2007, when on the eve of trial in the Novell litigation, SCO went running into bankruptcy court in Delaware in what was near-universally considered a last ditch effort to stave off their impending doom. It didn't work, however, as the bankruptcy court eventually lifted the automatic stay that prevented the Utah trial from taking place, and when Judge Kimball finally banged his gavel for the last time, SCO had its derrière handed to it to the tune of $2.5 million, plus interest.

Of course, Novell couldn't collect on the judgment, for two reasons. First, SCO appealed the decision, an appeal which was just heard by the Tenth Circuit Court of Appeals yesterday, and if its like any appeal we've ever seen, hairstyles will have changed before we see a ruling. The second reason is by far the stickier one: the bankruptcy. Bankruptcy courts have an almost alarming amount of authority and a reach that would make Stretch Armstrong jealous. Until the bankruptcy court finishes with SCO — and up to now they've been exceedingly lenient with them — nobody is getting anything out of them, except possibly more fabrications and false promises. That's not really true, though — their creditors aren't getting anything out of them, their attorneys, accountants, and heaven knows who else have picked up a cool $3.5 million since the bankruptcy began in 2007.

Why then all the wild pronouncements about SCO going to meet its maker? A certain valiant white knight called the United States Trustee. The trustee is something of the overseer in a bankruptcy case — the court has all the authority, but the trustee figures out how to use it. They generally file and oppose motions to do various things, and in general, watch to make sure everybody is getting a fair deal, both the creditors and the debtors. The U.S. Trustee in the SCO case is one Joseph J. McMahon, and on Tuesday, he filed a motion to convert SCO's Chapter 11 bankruptcy into a Chapter 7 proceeding. What's the difference? Chapter 11, for businesses, is much like a Chapter 13 for individuals — it places the debtor under the protection of the bankruptcy court, preventing their creditors from collecting on debts, judgments, etc. which would put the debtor out of business, for a period sufficient for the debtor to reorganize its affairs and implement a court-approved plan to emerge from the court's protection as a solvent enterprise.

A Chapter 7 is almost exactly the opposite: The court protects the debtor, but it does so not by holding off creditors while the debtor gets it together, but rather by taking possession of most of the debtor's assets, called the bankruptcy estate, liquidating them, and dividing the proceeds between the creditors. Once the dividing has been done — the trustee being the one who takes, sells, divides, and disburses — the debtor is given a discharge, a legally-binding order, valid everywhere in the United States, that all of the debtor's debts (with certain exceptions) have ceased to exist and preventing anyone from attempting to collect on any of these old debts.

For individuals, this in effect provides a fresh start, albeit with seriously damaged credit, for the debtor. Liquidating a business, however, doesn't generally involve a fresh start — it generally involves empty office space and nothing left to call a business. If the trustee is successful, and given the way the relevant law reads, he should be, everything SCO has so desperately been trying to sell in order to feed their litigation habit will instead be sold in order to pay off their creditors — a thought we're sure chills old Darl McBride's cold, black heart right to the core. SCO, of course, says they plan to oppose the motion and present a new reorganization plan, but given the success their previous plans have had, we suspect the effort will be a lot like stretching out chewing gum to stop a 747.

The hard-working guys at Groklaw, as always, have the text of the Trustee's motion along with commentary, as well as the whole lurid story for anyone who has managed to miss the three-ring circus.

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