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Tuesday, 16 October, 2001, 22:55 GMT 23:55 UK
Bust dot.coms anger investors
Computer rubbish
A concept and a lot of junk computers is often all a owns
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David Schepp
BBC News Online's North America Business Reporter

Following the bubble burst, doomed internet businesses, instead of just closing their doors, increasingly have opted to reorganise their businesses under federal bankruptcy laws.

It is an unusual move - usually reserved for companies with considerable assets - that has caused creditors and investors to cry foul.

In numbers far larger than businesses in general, businesses with as part of their name have opted to file for Chapter 11 bankruptcy protection.

In doing so, internet businesses, which debuted under much fanfare, offering up products and services as mundane as toothbrushes and complex as investment advice, have made equally showy departures.

Add one more

The cyber landscape is littered with familiar names, including,, and online grocer Webvan, each of whom have filed for reorganisation upon shutting up shop.

On Monday, eLot, which provided internet marketing and advertising technology for state lotteries, added its name to the long list of legends seeking bankruptcy protection.

In detailing its bankruptcy petition, eLot noted it owed its creditors more than $31m (21.4m) and had assets of $19.4m (13.4m).

By contrast, instant-photography pioneer Polaroid, which filed bankruptcy on Friday, listed assets of $1.8bn and $948.4m in liabilities as of 1 July in its filing with the court.

Details, details

Through late September, 44% of businesses with as part of their name declared bankruptcy, compared with 26% all bankruptcies, according to

The devil is in the details. Under Chapter 11 of the US bankruptcy code, a firm largely remains intact as it works out a plan of reorganisation from which it hopes to emerge as a viable business once again.

In filing Chapter 11, the existing management maintains control of the faltering firm's business operations, says attorney Wilbur Foster, partner at Milbank, Tweed, Hadley & McCloy.

Trusting trustees

"So the same people who were running the company before the filing will run it after the filing," he says.

Whereas, if a company files Chapter 7, in which a firms assets are simply sold off and creditors paid with the proceeds, an interim trustee is automatically appointed.

In almost every case, the interim trustee then becomes the final trustee, Mr Foster told BBC News Online, depriving employees of the bankrupt firm any control over any of the proceeds from the sale of the company's assets.

Creditors and investors of some failed dot.coms have taken issue with employees staying on during the bankruptcy proceedings fearing they will continue to milk the languishing firm dry.

During the reorganisation process, existing management must shepherd the faltering firm through myriad processes, including drafting new business plans and court appearances.

Employees who stay on through a Chapter 11 bankruptcy are frequently awarded bonuses and other incentives to assure a smooth change.

Limited resources

And that is where creditors and investors take issue. Given the limited resources of some dot.coms, they would rather opt for a quick liquidation and dispersal of assets.

"A lot of these dot.coms don't have anything around to reorganise," Mr Foster told BBC News Online.

Frequently, the firms have only a concept but little or nothing in the way of revenues, a lot of expenses and not much cash on hand.

A company has to ask itself, Mr Foster says "What it is there to reorganise? What do you have of value to preserve in a Chapter-11 case?"

Attorneys who represent investors say many executives are simply hoping to pad their pockets one last time.

See also:

11 Oct 01 | Northern Ireland
NI firms weather downturn
25 Sep 01 | Business
Double whammy for dot.coms
07 Sep 01 | Business
Bust has liquid assets
30 Aug 01 | Business crash squeezes top insurer
02 Aug 01 | Business failures slow
24 Jul 01 | Media reports challenges empire
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