Andersen partners may be liable for some debt

Andersen partners may be held personally liable for a portion of the embattled accounting firm's debts because of an unusual feature under Illinois law, Enron creditors said in a court filing.

One of the stalwarts of the accounting profession until a few months ago, Andersen is on trial in Houston on a charge of obstructing justice for destroying documents relating to its audit of the failed energy trader.

The firm has been selling off assets as it struggles to survive amid fleeing clients but has largely kept silent on its financial condition.

Chicago-based Andersen is structured as a limited liability partnership, which shields partners from liability stemming from malpractice. As the firm began to unravel early this year, questions arose over the liability faced by individual partners at the firm, since the LLP structure has never been tested in a case as large as Andersen's.

But individual partners can be held personally liable for commercial debt, such as trade debt and lease payments, because Andersen was set up in Illinois, Enron creditors said in a filing on Friday relating to Enron's ongoing bankruptcy proceedings.

The creditors, who are seeking to recoup losses from Enron's collapse, accuse Andersen of trying to minimize the potential liability of its partners by paying down the commercial debt. As a result, the pool of assets from which the creditors could recover their losses is shrinking.

The creditors said in the filing that they may bring a "fraudulent conveyance action" against Andersen – an action that prohibits bankrupt companies from shifting assets to reduce the pot of assets available to creditors.