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Judge orders examiner for Enron's biggest unit

A US bankruptcy court judge in New York on Thursday ordered the appointment of a financial examiner to monitor cash flows at Enron Corp's biggest division, Enron North America, a move hailed by some creditors.

Judge Arthur Gonzalez made his decision after creditors filed motions on concerns that parent Enron Corp may be improperly dispersing cash proceeds from Enron NA's disbanded energy trading operations to other Enron subsidiaries, some of which aren't in bankruptcy.

Creditor lawyers estimated that Enron NA could generate as much as $8 billion from the unwinding of energy trading contracts prior to last month's takeover of the operations by UBS Warburg.

They had asked the judge to appoint both an Enron NA trustee and a separate creditors committee to ensure that the assets are properly distributed to Enron NA's creditors. Some also asked for the judge to block all cash generated by Enron NA from going to its parent, arguing that they were virtually separate companies.

The judge stopped short of appointing a trustee or limiting cash from the division, which generated the bulk of Enron's $101 billion in 2000 revenues. However, lawyers for Enron NA hailed the move as a victory that would better protect their interests in the largest bankruptcy in history. Enron has been operating under Chapter 11 bankruptcy protection in the United States since December 2.

"The ultimate relief would have been to stop the sweep-up of funds to Enron Corp from Enron North America," said attorney David Bennett of Houston law firm Thompson & Knight, which represents some of the largest Enron NA creditors. "The judge didn't order that, but we got the next best thing."

The judge also ordered Enron to provide greater accounting of cash at its North American subsidiary, saying there is "a lack of confidence that the present structure protects (creditor) interests."

However, he didn't order any specific changes to the manner in which Enron Corp operates its cash management system, a move hailed by one member of the Enron Committee of Unsecured Creditors. A move to restrict cash flows could have damaged the interests of Enron's myriad other creditors, including those of the parent, this person said.

"The judge made an appropriate and correct decision," the committee member said, saying the judge basically approved more oversight over Enron's tangled finances but not structural changes to how the business is managed. "He's saying that what is wrong is that you don't trust the people, and that's fair."

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