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Instead of getting the red-carpet treatment in bankruptcy court, cash-flush Liberate Technologies Inc. has instead gotten the bum’s rush. Although the company has already submitted a reorganization plan, Judge Thomas E. Carlson for the U.S. Bankruptcy Court for the Northern District of California in San Francisco last week threw out the interactive TV software maker’s Chapter 11 filing, effective today. It’s rare for judges to throw out bankruptcy cases. The federal bankruptcy code doesn’t require a company to be insolvent to file. And in Liberate’s case, it did suffer large losses and faces a passel of lawsuits. But Carlson thinks Liberate can solve its woes outside of Chapter 11. “There is another side to the story,” he wrote in his 22-page opinion dismissing Liberate’s 4-month-old Chapter 11 petition. “The debtor has cash well in excess of its liabilities.” The company is appealing his ruling. “We firmly believe in our bankruptcy case and intend to vigorously appeal,” said David Lockwood, Liberate chairman and CEO. It’s the second time that Liberate’s largest unsecured creditor, Circle Star Center Associates LP of Palo Alto, Calif., has gotten the better of things. The leasing company successfully had Liberate’s case switched from Wilmington, Del., to San Francisco. And it was its motion to dismiss that Carlson concurred with. Liberate holds $212 million of unrestricted cash, yet its liabilities fall within the $59 million to $167 million range, according to court records. “The present case should be dismissed because the debtor is very solvent, very liquid, and can sell its assets as a going concern outside of bankruptcy,” Carlson said in his written opinion. Liberate’s case is to be dismissed unless a stay is granted in an appeal. The company said in a statement that Liberate believes the bankruptcy laws and judicial precedent support its Chapter 11 filing. Liberate has said in court filings that it needs bankruptcy protection because of pending litigation, operational losses, its desire to limit the amount owed to its landlord and problems in selling assets. Carlson says in his opinion that Liberate’s bankruptcy filing is premature at best. But while Liberate sought to “impose real hardships on its creditors” and “put a ceiling on the maximum recovery the litigation plaintiffs may recover,” Carlson stopped short of deeming the bankruptcy filing one of bad faith. He did specifically acknowledge that Liberate sought bankruptcy protection because it offers “enticing advantages” in dealing with litigation, and sought a sale while in Chapter 11 because �363 of the federal bankruptcy code provides better terms for buyers. Liberate had previously told the court that potential acquirers of its assets demanded that any sale be done in a Chapter 11 proceeding, yet a more recent acquisition offer from OpenTV Inc., a San Francisco-based interactive television company, said it would be willing to do so without a bankruptcy filing. “If the debtor were to accept and complete the OpenTV transaction, it would have stopped its operating losses, sold its business as a going concern and, after paying all its liabilities, have at least $130 million cash and the OpenTV stock to distribute to shareholders,” the judge said. At the core of Liberate’s bankruptcy filing was a bid to sever real estate leases it no longer needs now that it has scaled down operations. Enter Circle Star, which has a $45 million claim against Liberate. Circle Star’s lease was rejected in a June 7 order. Carlson, however, has restored that lease. “We agree with the bankruptcy court decision,” said Circle Star’s lawyer, Andrew C. Kassner of Drinker Biddle & Reath in Philadelphia. Liberate filed its prenegotiated bankruptcy petition on April 30 in the U.S. Bankruptcy Court for the District of Delaware in Wilmington, listing $257 million in total assets and $21.7 million in liabilities. On May 3, Circle Star filed a motion to have Liberate’s bankruptcy case transferred to San Francisco. And it was. San Mateo, Calif.-based Liberate was spun off from software giant Oracle Corp. in 1996. Liberate made its debut as a public company at $16 per share in 1999 but has lost money in almost every year since. Judge Peter Walsh in Wilmington agreed to transfer the case, calling the transfer appropriate given the “overburdened docket of [the Delaware] court compared to the less crowded docket of the [San Francisco] court.” Copyright �2004 TDD, LLC. All rights reserved.

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