Adam Law Group Blog

A “Relative” Large Chapter 11 Bankruptcy

In late July, Relativity Media filed for Chapter 11 Bankruptcy and Hollywood and bankruptcy enthusiasts alike are closely watching the case.  If you’re unfamiliar with the name, Relativity is the third largest mini-major film studio in the world with credits for producing titles (some with other production companies) like Limitless, Interns, Les Miserables, The Best of Me, Fast & Furious 6, and the TV show Catfish.  The company’s estimated assets are between $100 and $500 million with liabilities in the range of $500 million to $1 billion.  Creditors are numbered at over 1,000. chapter 11 bankruptcy

Not surprisingly, the former hoping for insight into previously secret information about the industry’s inner workings and the latter, taking lessons from a very large bankruptcy.

Chapter 11 Bankruptcy Lawyers

As discussed in prior bankruptcy blogs, Chapter 11 is a reorganization form of bankruptcy that allows the business to reorganize its debts with the goal of remaining in business.  This is in contrast to Chapter 7 bankruptcy where debts are liquidated to pay off as much of the debt as possible and then the business is dissolved.

Chapter 11 can be “voluntary,” as Relativity Media’s was, where the debtor chooses to file to try to gain control over finances and continue in business.  It can also be “involuntary,” where creditors who meet the requirements set out in 11 USC § 303 essentially force the business to declare Chapter 11 bankruptcy.  Creditors do this when they are concerned about not getting paid on their debts and want to try to ensure that they receive at least a portion of the debt owed to them.

Breaking Out of Chapter 11 Bankruptcy

There have been a lot of issues in the Relativity bankruptcy, many of them minor.  The current one is whether the company will be able to effectuate a sale that would terminate the bankruptcy proceedings.  It looks like it will.

In connection with its proposed sale, Relativity sought the judge’s approval of the auction sale of the company and a loan of over $45 million to keep the company afloat until the sale. Relativity is a debtor-in-possession, meaning it is continuing to run its own company during the pendency of the bankruptcy proceedings.  This allows it to continue to take actions in the ordinary course of business without specific court approval. However, because both the loan and the sale are outside of the ordinary course of business, Relativity was required to obtain judicial approval.  Initially, both were sharply opposed by certain creditors.  Late last month, the judge approved of the full loan and a quick timetable for the sale (Auction planned for October).

File Small Business Bankruptcy in Jacksonville, FL

It’s not just massive enterprises like Relativity Media that can utilize and benefit from Chapter 11 bankruptcy.  The procedure can be used by smaller business entities looking to restructure their debt in order to remain in business.  Though more complex than other options available to small to midsized businesses, Chapter 11 is the only one that allows the businesses operations to continue and for that reason alone, often worth the time and energy.

If you’d like to learn more about the options available for financially distressed business entities, the Jacksonville Chapter 11 bankruptcy attorneys at Adam Law Group would be happy to speak with you.