Lucent, PSINet Among Those Eligible for New Chapter 51 Protection
Ashburn, Va. (SatireWire.com) – A week after stating it may have to file for Chapter 11 bankruptcy but nonetheless wants to continue paying $105 million for the 20-year naming rights to a professional football stadium, Internet service provider PSINet today became the first public company to be given protection under the nation’s new Chapter 51 intellectual bankruptcy laws.
Analysts said they expect dozens of other firms to file for Chapter 51, which was recently enacted to aid struggling companies burdened by executives who are deemed “intellectually incapable” of making rational business decisions. The “51” refers, not to a section of the U.S. bankruptcy code, but to the assertion that a company’s executive team is not exactly playing with a full deck.
Under Chapter 51, companies can file for “hold harmless” asylum from investors and creditors if their executives “clearly exhibit” tendencies consistent with persons who should not be held responsible for their own actions. While companies in financial difficulty traditionally have filed for Chapter 11, analysts say the newly created Chapter 51 is preferable for several reasons. In particular:
> As opposed to the more costly and lengthy financial documentation required under Chapter 11, companies filing for Chapter 51 need only provide anecdotal evidence, such as newspaper clippings. Firms such as Priceline.com or marchFIRST, meanwhile, are eligible on reputation alone.
> Companies gaining Chapter 51 status are judged not accountable, and cannot be sued for malfeasance, as U.S. laws protect the mentally incompetent from standing trial.
In the case of PSINet, whose stock was halted last week when it was trading at just 19 cents a share, company officials said their professed determination to continue paying to have the company’s name plastered on the Baltimore Ravens’ football stadium when the company is $3.6 billion in debt proves the firm’s executive officers are “not intellectually viable” and therefore eligible for Chapter 51.
According to assistant U.S. attorney Griff DeMour of the Department of Justice, which handles bankruptcy filings, PSINet was a “shoo-in,” but noted many other companies have equally valid claims. “I think a lot of the dot-coms, particularly in the consulting sector, are eligible for Chapter 51,” said DeMour. “But I also expect to see filings soon from heavily in debt heavy hitters like Lucent, which actually thought it could make money by loaning money to its customers, who would then use the money to buy Lucent products.
“We’ll fast-track that baby whenever it comes in,” he added.
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