The SCO Group and its battle against IBM and Novell over ownership of computer code may have taken a decisive turn Tuesday when a U.S. Bankruptcy Court official sought permission to dissolve the company and sell off its assets.

The filing in bankruptcy court in Delaware came just as attorneys for the Utah company were preparing for arguments today in an appeals court in Denver. A favorable decision there would reverse a ruling that caused SCO to seek bankruptcy court protection in the first place.

The trustee appointed by the federal bankruptcy court in Delaware asked the presiding judge for permission to liquidate The SCO Group instead of allow it to reorganize and emerge from court protection.

Trustee Roberta A. DeAngelis told the court the company has “continued to rapidly lose money” since filing for bankruptcy two years ago. In addition, the company has had three failed attempts to sell itself or propose a plan to reorganize and continue in business.

“There is not a reasonable likelihood that the debtors will be rehabilitated,” DeAngelis asserted.

The timing of the filing caught SCO officers by surprise. CEO Darl McBride had flown into Denver to attend the 10th Circuit hearing.

“We are reviewing the motion that was filed in Delaware today with counsel and will have a detailed response for the court in due course,” McBride said in an e-mailed statement. “We plan to oppose the motion and present our own suggested course of action to the court.”

The bankruptcy judge could have the options of approving the liquidation, approving a plan presented by SCO or even dismissing the bankruptcy. If the motion is approved at a hearing set for June 12, the decision probably would bring an end to a contentious legal battle that has been ongoing since SCO sued IBM in 2003 over its allegation that the computer giant had placed Unix system software code owned by SCO in the competing Linux operating system.

SCO's lawsuit led to its widespread vilification by the community of programers who support Linux, a program whose operating code is open to the public and companies for free use or for development into commercial products.

In 2004, SCO sued Novell for trying to assert that it, and not the Lindon company, owned the copyright to the Unix code in question in the IBM case. But in 2007, U.S. District Judge Dale Kimball ruled in Novell's favor, prompting SCO to file for bankruptcy about a month later.

Attorneys for SCO and Novell are scheduled to appear today before a panel of the 10th Circuit Court of Appeals to argue over whether Kimball's decision should be upheld or overturned.

SCO argues that Kimball was premature in ruling for Novell and that the disputed facts of the case should have been aired at a trial.

Novell wants Kimball's decision upeheld.

“We are optimistic that the Court of Appeals will affirm Judge Kimball's thoughtful decision,” said Michael Jacobs, a San Francisco attorney representing Novell.

SCO officers have said they believe the decision will be overturned on appeal.