Two of Enron Corp.'s creditors asked a judge to strip the company's top management of power by ordering an independent trustee to run the energy trader as it reorganizes under the largest-ever Chapter 11 bankruptcy filing.
The Regents of the University of California and the Absolute Recovery Hedge Fund said in court papers filed late Friday that Enron's "management has inherent conflicts of interest" that are detrimental to the Houston-based company.
They asked U.S. Bankruptcy Judge Arthur J. Gonzalez in Manhattan to name a trustee who would supplant the company's top officers and its board of directors.
"It is clear that Enron's current directors, officers and managers mismanaged Enron prior to the bankruptcy filings and continues such mismanagement after the filing," the creditors said.
Enron representatives Karen Denne and Mark Palmer could not immediately be reached for comment.
The UC system lost nearly $145million investing in Enron. The university system is among several plaintiffs suing Enron, citing fraud and seeking restitution.
After disclosures of overstated earnings and off-balance-sheet financing, Enron shares plummeted last fall.
Under bankruptcy laws, creditors must demonstrate that there has been mismanagement, incompetence or fraud to have a Chapter 11 trustee appointed.
Enron Chairman and Chief Executive Kenneth L. Lay resigned last week amid pressure from the creditors. Enron said it plans to name a turnaround specialist to run the company until a permanent replacement for Lay is found.
The UC Regents and the Absolute Recovery Hedge Fund said in the filing that the naming of a new top executive would not solve Enron's problems.