Lawsuit to Turn on Fair-Value Feud?

Lawsuit to Turn on Fair-Value Feud? - 9/2/2009

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2009 News and Press Releases

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HEADLINES \| SETTLEMENTS AND DISMISSALS \| COURT FILINGS LINKS TO OTHER NEWS \| NEWS ARCHIVE	HEADLINES ARCHIVED SETTLEMENTS AND DISMISSALS ARCHIVED

HEADLINE NEWS:

Lawsuit to Turn on Fair-Value Feud?, GAAP is Moot in Bankrutpcy Court, as Fair-Value Estimates Will Help Determine Whether Claims of Insolvency are Valid in a Hotly Contested Case.
Marie Leone

CFO.com. September 2, 2009
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EXCERPT: At the heart of a contentious court case between a company and its ex-parent is an accounting question that has been dogging corporate finance executives for the better part of a year. That is, what is the fair value of a company's contingent liabilities? The answer may help a bankruptcy court determine whether chemical maker Tronox Inc. was solvent at the time of its initial public offering in November 2005. If it turns out Tronox was insolvent, it could lend credence to its claims against the former parent, Kerr-McGee, now part of Anadarko Petroleum, which Tronox also is suing. However, coming up with a contingent liability valuation won't be easy. The challenge is in putting a price tag on future losses, a notion that is already steeped in controversy. Tronox claims that Kerr-McGee orchestrated a scheme to sell itself to Anadarko after it "dumped" contingent liabilities on Tronox. The chemical company also alleges that Kerr-McGee misrepresented Tronox's financial health at the time of its IPO, and set up the chemical company to fail by leaving it "undercapitalized" and laden with environmental contingent liabilities. By January 2009, Tronox had filed for Chapter 11. In response to the lawsuit, Anadarko filed a motion in bankruptcy court to dismiss the case, contending that Tronox's allegations were an "attempt to rewrite history" and unjustifiably blame its poor financial condition on Kerr-McGee. Anadarko, in its motion, said the Tronox claims were "not only misleading, but insufficient as a matter of law." For example, Anadarko contends Tronox did not show signs of insolvency until three years after the IPO.

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