KPNQwest may seek protection as crisis deepens –

Dutch business Internet-services company KPNQwest NV lurched closer to financial disaster Thursday as the company revealed it may seek protection under Dutch insolvency law.

At the same time, KPNQwest's supervisory board, made up of two representatives of Qwest Communications International Inc., two independent directors and one representative of Koninklijke KPN NV, resigned with immediate effect, the company said in a statement.

Moratorium protection is one of two chapters under Dutch insolvency law, and is intended to give companies some breathing space by suspending the company's need to make payments, so that temporary financial problems can be resolved. The other chapter is bankruptcy, geared towards liquidation of a company's assets.

"It (moratorium protection) is comparable to Chapter 11 bankruptcy protection in the U.S.," said KPNQwest spokesman Piers Schreiber.

KPNQwest's recently announced customer wins include Hewlett-Packard Co., Foot Locker Inc. and Dutch airline Koninklijke Luchtvaart Maatschappij NV (KLM). Customers are being informed about KPNQwest's situation, said Schreiber.

"We are in dialog with our customers. We called our major customers, they have been very supportive of us and no customers have switched away," said Schreiber, adding however that "most customers will have a dual vendor policy."

KLM, for which KPNQwest provides an IP (Internet Protocol) VPN (virtual private network) solution, said it doesn't deal directly with KPNQwest, but has a contract with Koninklijke KPN NV, the largest phone company in the Netherlands and a KPNQwest shareholder. KLM is investigating the consequences of a KPNQwest bankruptcy.

"Our Information Services department is making sure, through KPN, that we won't be adversely affected by a KPNQwest bankruptcy," a KLM spokesman said.

KPNQwest is still trying to seal an agreement with its major bank lender. The bank has said that KPNQwest must sell off certain assets within a reasonable period of time, but KPNQwest has so far been unable to find buyers. There can be no assurance that any agreement will be reached, the company said in a statement.

"We are working closely with our banks and other stakeholders to work out a path towards strengthening the balance sheet, attracting additional funding and keeping business as usual," said Schreiber, adding that KPNQwest has received "credible offers" for the assets that are up for sale.

Last week, KPNQwest issued a statement containing a strong warning about its precarious financial position, which led research group Gartner Inc. to advise the company's customers to look around for an alternative supplier.

Seeking insolvency protection is not the same as bankruptcy, although in practice, in more than 95 percent of cases a moratorium is the forerunner of bankruptcy, even if the intention is to continue a company in a pared-down form after the declaration of bankruptcy, according to the European Industrial Relations Observatory (EIRO).

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