SCO trying to keep Novell's money?

A month ago I posted on the ruling that SCO didn't own the copyrights to Unix, and in fact owe part of the proceeds for their licensing to Novell.  While the hearing to even decide what the amount owed to Novell has not even occurred yet, SCO has taken the step of declaring bankruptcy.  Subsequent to this, the Nasdaq has acted as I expected they would and moved to de-list them.  If you read the article on Groklaw linked to, you will also see that SCO approved raises and bonuses for executives the day before they announced the bankruptcy.  It is a good indicator of the type of company we are dealing with here.

The interesting thing about this to me is that SCO is not bankrupt.  Their latest 10Q shows that in April they had $18.9M of current assets vs $12.5M of current liabilities.  And even in their petition claim they have $14.8M of assets and $7.5M of liabilities.  This is not bankrupt, according to my understanding bankrupt is when you cannot pay your debts (see the section on chapter 11 in Wikipedia).  That’s why when I saw the values on the petition I immediately went to their latest balance sheets.  Even if a company is solvent, they can still be bankrupt if their current assets are not enough to pay the bills.  But this is not the case either, at least it wasn’t in April.

Either SCO has been playing funny buggers and moving current assets to foreign subsidiaries (which are not covered by the chapter 11 claim), or they believe that Novell are entitled to more than $7.3M.  Unless SCO executives have a hankering for prison food, I think it is more likely the latter.  Novell would also agree considering they believe they are owed about $30M.

Unfortunately for SCO though, the money they owe to Novell is not a debt, it is Novell’s money, and therefore not protected by bankruptcy.  Pamela Jones of Groklaw explains it very well in the article linked to earlier, “If I rob a bank, I can't then run to bankruptcy court and file for protection so I can keep most of the money. That money was never mine, so I can't offer to pay the bank back at 10 cents on the dollar. I have to pay over whatever I stole, 100% or to the limit of what I have left in real life.”  So they are either pre-empting to ensure they have the protection in place before the inevitable, or (as Pamela says only slightly tongue in cheek) they are trying to spend Novell’s money before they can get it.

Realistically they know that the game is lost.  The motivation behind this is to limit the damage.  While the attempt to get an undeserved Linux windfall would have set the company and shareholders up big time, the gamble didn’t pay off, but SCO still has other product lines that they believe in enough to have launched to market.  The law suits are under US jurisdiction, so if they can limit the damage to the US operation they can at least still keep the company around to promote these products.  They would probably need to re-incorporate in one of their subsidiary locations, but that would not be too problematic.  I am not sure what the implications would be of them re-opening a subsidiary in the US, but their new customers aren’t there anyway.

A look at the SCO press release site tells an interesting story.  Generally vendors only create press releases for fairly significant sales.  The ‘new customer’ press releases from SCO over the last while are all outside the US, and apart from an OpenServer upgrade deal to a Russian bank, quite small.  The customers are not exactly flocking to SCO, and the pace is not likely to accelerate after declaring themselves bankrupt.  If the Chapter 11 filing won’t protect them from Novell (which all I have read suggests it won’t) then I would expect a ruling from that which would quickly change the reorganization bankruptcy into a liquidation one.  Does anyone want the licensing rights to Unix, going cheap.  Is that the sound of the fat lady doing vocal warm ups?