Partner With Us

Hounded by financial and legal troubles, Lernout & Hauspie Speech Products N.V. and its Dictaphone subsidiary on Wednesday filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court in Delaware.

L&H, which has joint headquarters in Burlington, Mass., and Ieper, Belgium, will continue operating as it develops "a new strategic plan" to turn the company around and become profitable.

In addition to the filing, L&H said it's in negotiations to obtain debtor-in-possession financing to fund operations after it failed to secure bank financing. The company owes five banks a total of $430 million, with $200 million in short-term loans due in March. Much of the money was used to help finance L&H's acquisition of Dictaphone last spring.

Under Chapter 11, the most common form of bankruptcy filing, the business remains in control of its operations while it works out a payment plan with its creditors under the supervision of a bankruptcy judge. Debtor-in-possession financing typically comes from an outside funding source, which in turn takes control of a portion of the business.

The bankruptcy filing comes days before a Friday deadline reportedly set by creditors demanding the company pay its debts or restructure.

L&H's general counsel, Daniel Hart, said an important decision to file for bankruptcy protection "was the recent discovery of a very significant cash shortfall on the balance sheet of the Korean subsidiary, the circumstances of which we will vigorously investigate with the assistance of external resources."

The Wall Street Journal reports that $100 million that was on L&H's books in South Korea is apparently missing. The company had been counting on that money to help pay its debts.

On Nov. 9, L&H said an audit of its financial statements found "errors and irregularities" that would force it to restate earnings for the past two and a half years. When the Nasdaq Stock Market halted immediately halted trading, L&H stock was at 6.22 per share, down from a 52-week high of 72.50. Trading hasn't resumed.

L&H's troubles began in August when the Wall Street Journal reported that sales to customers in Korea may have been overstated or invented.

L&H, whose sales have been falling around the world, reported revenue in Korea jumped from $97,000 in 1999's first quarter to $58.9 million in same period this year. The company disputed the initial story.

The news and subsequent stock drop promoted shareholders to sue the company. The Securities and Exchange Commission launched an investigation in September, which is still ongoing.

President and CEO Gaston Bastiaens stepped down in August (though he remained a director). The executive purge continued last week with the resignation of co-founder and director Pol Hauspie, Bastiaens and another executive from the board of directors.

L&H President and CEO John Duerden said Wednesday that the voluntary bankruptcy filing "is both prudent and necessary to preserve and rebuild our valuable customer base and technology assets...This court-supervised process will enable us to focus on realizing the enormous commercial potential of L&H's considerable technology resources, while continuing to investigate and remediate problems emanating from the past."