Michael, In bankruptcy management can run the business and engage in ordinary course transactions but they now have to shift their fiduciary duty to include creditors, not just shareholders. Certain transactions require the approval of the bankruptcy judge. The management has 180 days to develop a reorganization plan for the overall future of the company that must be approved by the creditors in a rathe complicated voting scheme. From the following story it seems clear that the expectation is that UBS will generate some future cash flow back to Enron through its independent control and management of the trading operation, so it would likely have been viewed favorably by the court and the creditors. An order approving the deal was probably issued by the bankruptcy court and is probably available on the FindLaw Enron site.
Steve Feb. 11, 2002, 11:55PM Former traders for Enron start work under UBS By TOM FOWLER Copyright 2002 Houston Chronicle The fifth and sixth floors of Enron Corp.'s new downtown tower were back in action on Monday as about 650 former EnronOnline traders began operating UBSWenergy.com. UBSWenergy.com, created using the Internet-based trading software and much of the people power of the former EnronOnline, posted prices for four natural gas contracts and two electricity contracts. It was a modest start compared with its predecessor, which at its peak offered more than 1,700 different products, but it was the first step in what may become a source of payment for Enron's hundreds of creditors. While transactions are backed by the Swiss bank's investment-grade credit rating, energy buyers and sellers say it is too soon to know whether UBS Warburg Energy, owned by UBS Warburg AG, can revive a trading business that once generated most of Enron's profit before its Dec. 2 bankruptcy filing. "A lot of people are still getting documents in place" to set up trading accounts with UBS, said Thomas Padron, head of natural gas trading at energy brokerage GFI Group in New York. He expected it to take two to four weeks before UBS Warburg's new venture's chances for success are known. About 650 former Enron traders and support staff are running the site, which is headed by former Enron President and Chief Operating Officer Greg Whalley. Enron's trading business was the company's largest revenue generator, accounting for about 80 percent of the firm's profits. With 800 trading desks around the world, Enron once dominated the oil, natural gas and electric power markets, while also swapping a host of other commodities. In 2000, the system conducted as many as 548,000 trades, valued at more than $330 billion, according to Enron. Former Enron Chief Executive Officer Ken Lay once called EnronOnline one of the three most significant changes to the energy industry in the past 20 years. When it went live in 1999, it brought a new level of price transparency, liquidity and efficiency to energy and other commodities, Lay said. "I believe it will be an enduring Internet success story," he said. But Enron's collapse last fall led customers to flee, helping to bring on the resulting bankruptcy filing in early December. Even in bankruptcy, the company considered the business unit to be valuable, and paid millions to its top employees to stay with the unit. John Lavorato, president and CEO of Enron Americas, received a $5 million retention bonus, while Louise Kitchen, Enron's former head natural-gas trader in London, received $2 million. Both have been hired by UBSWenergy.com. In bankruptcy, Enron tried to lure bidders to take a stake in the business to operate it as a joint venture and begin generating cash for Enron again. Negotiations with two parties, UBS Warburg and Citigroup, ran almost nonstop for two days in January before UBS Warburg was chosen. The deal was not what many expected, however. Instead of paying cash for a stake in the business, UBS Warburg will pay 33 percent of the new trading business' before-tax profits to Enron for the first two years, with higher payments possible later if UBS Warburg buys Enron out. UBS Warburg assumed none of Enron's liabilities or past trading positions, but did agree to pay $5 million of the $11 million in retention bonuses paid to top traders. UBSWenergy.com has its work cut out for it. Following Enron's collapse, many traders took their business to the Intercontinental Exchange, an Atlanta-based Web site that's owned by 13 energy-trading firms, such as BP, Morgan Stanley Dean Witter & Co. and American Electric Power Co. Other traders, who lost money because of Enron's collapse, said they wouldn't return until UBS Warburg replaces the former Enron managers. Michael Barbis, an analyst with Fulcrum Global Partners in New York, said the new organization faces a tough challenge to succeed, given its association with Enron. "No one expects them to be what they were," Barbis said. "It will be a tougher time for them to get going, is my bet." The Associated Press and Bloomberg News contributed to this story. Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
