Apr 21, 2010 12:45 PM PDT    Text size: 

In court papers filed with the U.S. Bankruptcy Court, Escom filed a motion in response to DOM’s request to throw out its involuntary bankruptcy case against Sex.com in order to resume a foreclosure auction which was put on hold in March.

The involuntary Chapter 11 filing was made at U.S. Bankruptcy Court in Los Angeles on behalf of three investors — Washington Technology Associates (claiming $6.6 million), iEntertainment Inc. (claiming $3.5 million) and AccountingMatters.com LLC (claiming $7,800).

The response says, “Escom is a company being strangled by its debt and the inability of its principals to agree on a course of action. In order to maximize the value of its estate, it must sell its single asset, the domain name Sex.com. However, due to in-fighting between DOM and WTA, Escom has not been able to move on a reasonable sale process.”

The motion states that the filing of the bankruptcy petition was a welcome turn of events that opens the possibility for the debtor to properly market and sell its domain name in order to distribute the proceeds to its creditors.

DOM says it loaned more than $4 million to Escom LLC to fund the operations for Sex.com.

The legal papers say that the operating agreement require the three managers to give unanimous approval prior to any significant action being taken, but that this provision has lead to disastrous results.

The motion further states, “the debtor began discussions on selling the domain but disputes between DOM and WTA prevented the debtor from proceeding.”

DOM partners claim that “nothing short of a miracle” would allow Escom to repay its creditors without a sale of the domain name. They add that if the case were to be immediately dismissed, enough interest could still be generated among potential bidders.