Relativity Media struggles to come back from bankruptcy

How does a chapter 11 bankruptcy affect your business?

Bankruptcy is often associated with “going out of business sales” and “out of business signs.” The reality is, businesses can file for bankruptcy to develop plans to repay some or all of their debts without necessarily closing up shop.

Relativity Media Emerges from Chapter 11 Bankruptcy

Relativity Media is attempting to do just that. The movie studio sought Chapter 11 bankruptcy protection in July 2015 in order to keep operating while paying off its’ debts.  The company had over $1 billion in liabilities, but only $560 million in assets following a string of bad movies. The company emerged from bankruptcy this past March.

While its’ leader, Ryan Kavanaugh has been working diligently to get Relativity Media out of bankruptcy and into solvency, it’s been a rocky road. According to court documents, Kavanaugh has still been unable to pay vendors and has been forced to sell the company.

Despite these setbacks, there may be a silver lining for Relativity. While the deal is not settled, Singapore social e-commerce company YuuZoo has offered to buy a minority stake in Relativity Media, with an option to become a majority shareholder over the next two years.

It remains to be seen whether the initial investment of $50 million and potential $100 million supplemental investment will be enough to pay off Relativity’s debts. Relativity Media stands at a crossroads between Chapter 7 liquidation and continued operations.

Business Bankruptcy Options

If you find your business is unable to meet its’ financial obligations, you have some options. The most common options, besides closing up shop and hoping the creditors will go away, is Chapter 7 bankruptcy, Chapter 11 bankruptcy and Receiverships.  All have their pros and cons, which we’ve talked about in other posts. Most people understand what Chapter 7 bankruptcies mean, but they don’t clearly understand how a Chapter 11 bankruptcy can affect their business.

How Does Chapter 11 Bankruptcy Affect Your Business?

Filing for protection under Chapter 11 bankruptcy laws enables a business to continue operations while it works out a payment plan with its’ creditors. This payment plan must be approved by the bankruptcy court.

Larger businesses generally have no deadline to file their repayment plan. Smaller businesses may be limited to 300 days after filing to propose their plan.  The business will also have some disclosures to file, which can include:

  • Recent balance sheets
  • Statement of operations
  • Cash flow statement
  • Recent federal tax return

In some chapter 11 cases, creditors may file counter-plans, which usually include liquidating assets. However, if long-term revenues have the potential to be much greater than the value of the business’ assets, they will allow the company to continue operating.

Businesses that have sought chapter 11 bankruptcy protection must maintain operations as usual and cannot sell major property or expand operations without court approval.

Thinking about business bankruptcy?

If you think bankruptcy may be right for your business, the best thing you can do is talk to an experienced bankruptcy attorney. The attorneys at Hanson & Payne can review your situation and provide you with options for moving forward. Contact us today or call (414) 271-4550 for a consultation.

Cosi restaurant parent company seeks buyer

How does the Section 363 Bankruptcy Sale Process Work?

Cosi, a popular Boston-based café with locations across the US, Costa Rica and the United Arab Emirates has recently filed for Chapter 11 bankruptcy relief after closing 29 of their most under-performing locations. After being delisted from the Nasdaq stock market, Cosi is seeking buyers for their currently held assets.

As part of their restructuring efforts, Cosi will be selling its’ assets through what’s known as a section 363 bankruptcy sale.  This type of sale is only available to debtors who have filed for Chapter 11 bankruptcy protection.

Why Choose a Section 363 Bankruptcy Sale?

The section 363 sales process provides a few key benefits to debtors that make it truly worthwhile to file for Chapter 11 bankruptcy protection.  Section 363 sales allow debtors to convert assets to cash through a competitive bidding process, while providing clean title to purchasers.  This enables debtors to get closer to market value for their assets in a short amount of time.

The Basics of a Section 363 Bankruptcy Sale

Section 363 sales are, as you probably guessed, pretty structured.  They start with the identification of a proposed purchaser whose bid will set the minimum floor of the purchase price and will set forth the terms of the transaction. The initial bid is called the “stalking-horse” bid. This, like all subsequent bids, is subject to higher or better offers received by the trustee.  The bid and the terms will be set forth in a formal asset purchase agreement (APA) and the proposed purchaser will be required to wire a deposit, usually 5% – 10% of the bid, to a designated account.

After the APA is signed, all parties will file a motion for two hearings. The first is to seek approval for the proposed bid procedures to be used at auction and to schedule deadlines for competing bids and any objections to the sale.  Things to be settled during this first hearing include:

  • Date, time and location of the public auction
  • Amount and process for providing good-faith deposits
  • Information required to qualify as a “qualified bidder”
  • The amount of the “initial overbid” that must be provided that will be considered higher than the stalking-horse bid.

The second hearing occurs after the auction, where the seller submits the winning bid and seeks approval of the sale and entry of a “sale order.”

As is the case with all bankruptcy proceedings, any sale or action involving assets must be preceded by adequate notice to all parties-in-interest to the case. Interested parties may include:

  • Secured lenders
  • Government agencies
  • Parties to contracts that may be sold or assigned to the purchaser
  • Any committees formed in bankruptcy case
  • Any person expressing an interest in the properties.

The auction is typically held in the office of the debtor’s attorney. Each bidder will have the opportunity to ask questions before the formal auction, which is transcribed by a court reporter.

Once the bidding is concluded, the second hearing is held where the debtor or bankruptcy trustee present to the bankruptcy judge the process that was undertaken to ensure a valid auction.

Need Help?

If your business is struggling financially, there are ways to make things easier on yourself. The experienced bankruptcy attorneys at Hanson & Payne can review your situation and provide you with options for moving forward. Contact us today or call (414) 271-4550 for a consultation.