SCO files for bankruptcy protection

The Chapter 11 filing will allow SCO to protect its assets

Software maker and Linux litigant SCO has filed for chapter 11 bankruptcy protection.

The move allows SCO to reorganise its business while keeping debt collectors at bay.

Companies filing for bankruptcy protection are also forced to stay all legal cases, which will affect SCO's proceedings against Novell, IBM and a group of Linux users.

"We want to assure our customers and partners that they can continue to rely on SCO products, support and services for their business critical operations," Darl McBride, chief executive for the SCO Group, said in a statement.

"Chapter 11 reorganisation provides the company with an opportunity to protect its assets during this time while focusing on building our future plans. "

The announcement comes one month after the firm lost a crucial battle in its legal campaign against Novell.

A federal judge ruled in August that Novell, not SCO, owns the intellectual property to the Unix operating system.

The ruling eliminated the foundation underneath SCO's legal case, and also meant that the firm would owe Novell tens of millions in dollars in licence fees.

A potential claim from Novell would probably have outstripped SCO's assets, forcing the company into bankruptcy. The claims would have been addressed in a future court hearing which has now been stayed.

A spokesperson for Novell said that the company is exploring its options and declined further comment.

Investors abandoned SCO stock after the August ruling, and the bankruptcy filing sent the stock price down 43 per cent on Friday alone in after hours trading.

The filing is unlikely to be a result of mounting legal fees for SCO's prolonged battle.

The firm agreed in 2004 to pay its lawyers a flat fee of $31m for the remainder of the legal proceedings, in exchange for a 20 to 33 per cent cut in a potential legal settlement or damages.