Escom LLC, which paid $14 million for the domain name Sex.com, was forced into involuntary Chapter 11 bankruptcy by three creditors on Wednesday.
With the filing, the auction has been put on hold for now.
Mike Mann, an investor with all three creditors, said the petition was filed to stop the auction. The creditors, according to the filing, have a combined $10.1 million claim.
Mann said selling Sex.com at auction was not going to enhance its value and would have been undervalued.
Escom paid $14 million for the domain name in 2006, but the company was unable to repay the debt. The lender ordered the foreclosure sale, which was supposed to have an opening bid of $1 million.
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).
"Petitioners took this action to protect their interests and to maximize value for all other creditors and equity holders," according to a release by bankruptcy attorney Lawrence Morrison on behalf of the creditors. "The filing will stay the public auction foreclosure proceedings previously scheduled, which petitioners believe would have diminished the value of Escom's assets."