For pink sheets-traded V-Net Beverage Inc., a Jan. 29 press release began with news that the company had appointed Robert Corr as new president. Corr brought to the job, the release offered, a storied career in "the functional beverage market." Among his achievements: the introduction of a drink called Ginseng Rush.

"In other company news," the release continued, "the board of directors has elected to file for Chapter 11."

The reference was so casual it's funny. But there's nothing humorous about V-Net, a company with more busted schemes than Homer Simpson and more name changes than Prince. In March, V-Net suffered the indignation of having its bankruptcy case thrown out of court. It was an extremely rare example of a judge dismissing a corporate Chapter 11 filing.

"It was our understanding that [V-Net] had no assets, so there was nothing to reorganize," says Ira Bodenstein, the U.S. Trustee on the case who requested the dismissal from the U.S. Bankruptcy Court for the Northern District of Illinois in Chicago with the backing of unsecured creditors. Judge Benjamin Goldgar obliged. "We try to nip these kinds of cases in the bud," Bodenstein says.

By these kinds of cases, Bodenstein means ones that aren't filed in good faith. The 1978 revamp of the federal bankruptcy code states that companies should file bankruptcy in good faith, a holdover provision from the 1938 law. But the details of what constitutes good faith aren't enshrined in any law or rule. "It's in the eyes of the beholder," says David Kuney, a partner at Sidley Austin Brown & Wood LLP and a professor at Georgetown University Law Center. "It varies from judge to judge."

Bad-faith bankruptcies are rare. One of the most famous occurred in 1999, when the U.S. Court of Appeals for the Third Circuit threw out the Chapter 11 filing of SGL Carbon Corp. The company, a U.S. subsidiary of Germany's SGL Carbon AG, filed for bankruptcy in 1998, after being slapped with a Department of Justice price-fixing judgment. Company executives, however, immediately boasted to analysts and stated in a press release that the company was financially healthy and that the DOJ litigation didn't have a material effect on operations. Further, the reorganization plan insured that all creditors, including SGL's parent, would gain cash. Only customers due for reimbursement because of the suit would get deferred product. Although a bankruptcy judge approved the reorganization, the appeals court overturned the decision.

More often than not, the vast majority of dismissed cases revolve around single-asset, real estate disputes. Bankruptcy experts say what usually happens is that a company tries to beat foreclosure through a filing. But even dismissals of these kinds of cases have trailed off considerably since the early 1990s as creditors have become more adept at countering the bankruptcy itself.

In V-Net, however, at least one lawyer involved in the matter thinks Corr's motivations for seeking Chapter 11 were suspect. "It is apparent that this was a bad-faith filing on the part of V-Net," says Yvonne Renfrew, an attorney who represents those suing a V-Net predecessor company for malicious prosecution. Corr "believed the bankruptcy judge could and would dismiss the California action."

In a telephone interview, Corr acknowledged he filed for bankruptcy to short-circuit that pending malicious prosecution lawsuit, filed against the company then called ComputerXpress.com Inc.

To get some flavor of just how wacky and messy the V-Net saga is, start with Corr, its most recent CEO. Corr has a colorful and unorthodox history, much of it in court. Three years ago, he sued PepsiCo Inc. for trademark infringement and, acting as his own attorney, accused the judge of corruption. (The infringement case was thrown out.) In court papers, he's more than once said he's impoverished. He's also admitted that he put V-Net in bankruptcy in Chicago even though the company had no standing there -- for about five months before he was named president, the company was based in the San Diego suburb of Temecula, Calif. Corr himself lives in Blue Island, Ill., and says he didn't want to fly across country for hearings.

The malicious prosecution lawsuit against the V-Net predecessor company is pending in a Los Angeles Superior Court. A trial is due to begin June 1. But Corr may escape paying the airfare. This time, he isn't a defendant.

That malicious prosecution case stemmed from a busted merger involving ComputerXpress.com and the owners of computer stores. After one of the owners complained on the Internet about the company, ComputerXpress.com and some of its principals sued for libel, fraud and tortious interference. Not only were the cases dismissed, five were deemed by a California Court of Appeal to be subject to that state's anti-SLAPP (for Strategic Lawsuits Against Public Participation) law, which gives the green light for a malicious prosecution countersuit. Plaintiffs became defendants.

A few weeks later, Corr and V-Net bolted for bankruptcy. Of course, plenty of others have done the same. The use of Chapter 11 has emerged as an accepted method of managing potentially crippling mass torts including those related to asbestos, contraceptive devices and silicone implants. "You don't have to be insolvent to go into Chapter 11," says Jon Schneider, a bankruptcy partner at Goodwin Procter LLP in Boston. "[But] you do have to have good reason to need the protection of the court."

And what's a "good" reason? The bankruptcy code delineates under Section 1112 circumstances that allow conversion into a Chapter 7 liquidation or a dismissal. (Goldgar cited Section 1112 in the V-Net dismissal.) These include failure to file a reorganization plan, the absence of a reasonable likelihood of rehabilitation and unreasonable delaying tactics by a debtor that would harm creditors.

While examples abound of Chapter 7 conversions, judges rarely dismiss corporate Chapter 11 cases. "Typically, a judge wants to play the case out," says Roger Whelan, a former U.S. Bankruptcy Court judge in Washington, and the resident scholar at the Washington-based American Bankruptcy Institute. "A dismissal is very unusual, simply because of the philosophy of what Chapter 11 is all about. It's almost always conversion to Chapter 7 rather than throwing a company back to the wolves."

Nor does the bench sit in judgment on whether the company operated ethically, efficiently or even whether its executives made the best decisions for shareholders. Chapter 11 "is not supposed to be moralistic," Sidley Austin's Kuney says. "You can't say, 'This debtor just doesn't behave correctly.' "

A judge does, however, have the latitude and ability to dismiss a Chapter 11 case because the bench believes the case was filed for reasons that don't hinge on a company's financial survival.

Some lawyers believe the bad-faith concept is most often a shorthand for other problems. "It may be framed as a bad-faith finding, but when you actually look at the cases carefully, the courts would conclude there's no way for them to confirm a plan," says Glenn Siegel, a partner at Dechert LLP.

Bad-faith bankruptcies also aren't tracked by the U.S. Trustee's Office. While U.S. Trustees may act as watchdogs, they are mostly focused on "lack of schedules, lack of some proper approach to the case, a procedural problem," Goodwin Procter's Schneider says. They usually don't make judgments about the merits of a particular filing.

Pink sheets companies, however, raise red flags. While admittedly an unscientific study, The Deal was able to find only two other bankruptcy dismissals among public companies in the past two years. Both involved pink sheeters.

One was an involuntary Chapter 7 filing against Infectech Inc., a Sharon, Pa., biotechnology company, by three former executives. Judge Warren Bentz of the U.S. Bankruptcy Court for the Western District of Pennsylvania in Pittsburgh dismissed the case in July 2003 because the three petitioners didn't have valid claims against the company, they weren't true creditors and no judgment against the company would support a Chapter 7 filing, according to Infectech's lawyer, Albert Boucek.

The other case involved Summit National Consolidation Group Inc., a Clearwater, Fla., company whose Chapter 11 filing was dismissed by the U.S. Bankruptcy Court for the Southern District of Texas last summer, too.

Like V-Net, Summit National was a complex case. SNCG's owners ostensibly sold 65% of it to Interlabs Inc., a small cosmetics company that wanted to use SNCG as a back door to a listing. The former owners then allegedly issued more stock, diluting Interlabs' stake, and SNCG's CEO put the company into bankruptcy. A judge dismissed the filing after the parties came to a settlement.