Creditors Right To Sue Arthur Andersen. A Federal bankruptcy court judge on Thursday granted creditors of Enron Corp. the right to try to recover $10 million paid to former auditor Arthur Andersen LLP days before the energy company’s collapse.
The official committee of unsecured creditors, which looks after the interests of those owed money by Enron, sought the authority from Judge Arthur Gonzalez to sue Andersen on the company’s behalf.
The Chapter 11 code entitles a company to challenge payments made within 90 days of a bankruptcy filing, to prevent any transactions that unfairly benefit one creditor at the expense of the others.
Enron has indicated its willingness to let the creditors lead the charge to maximize their potential recovery.
Enron had gone to liquidation
The creditors panel said in its court papers that all the available evidence indicates Andersen received “more than it would likely receive” if Enron had gone to liquidation under Chapter 7.
In that case, the absolute priority rule applies, meaning that creditors with secured claims get the first call on the company’s assets, followed by unsecured claimants.
Andersen, once the world’s most respected accounting firm, recently shut down its auditing practice after a criminal conviction in June for its Enron bookkeeping work.
The once-highflying Houston-based energy trader crumbled amid a huge accounting scandal late last year and took refuge in the bankruptcy court in December.
Andersen, based in Chicago, also is a target in a class-action lawsuit filed in a Houston federal court by Enron investors and former workers.
Those plaintiffs, who said they suffered $29 billion in losses in Enron’s fall, accuse Andersen of contributing to fraud at Enron that included hiding $1 billion in losses in off-the-books partnerships.
Meanwhile, Enron’s creditor committee also has been conducting its own investigation of Andersen’s role in Enron’s demise, which could lead to additional claims against the former auditor.
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