Rhythm & Hues Filing for Bankruptcy After Deal With Prime Focus Collapses

Suitors are circling Rhythm & Hues, but the company will now seek bankruptcy protection

Oscar-winning visual effects company Rhythm & Hues Studios will seek Chapter 11 bankruptcy protection, according to an individual with knowledge of the situation.

A deal for Indian-based Prime Focus to buy the Oscar-winning visual effects studio collapsed, forcing the company to file, the individual said. 

The news comes as Rhythm & Hues is being honored for its artistry. The company is nominated for two Oscars for its effects work on "Snow White & The Huntsman" and "Life of Pi," and won a British Academy of Film and Television Arts award last weekend for its contributions to the latter film.

Representatives for Rhythm & Hues and Prime Focus did not immediately respond to requests for comment.

Also read: Troubled Visual-Effects Company Rhythm & Hues Gets $20M Studio Infusion (Exclusive)

There are still several suitors interested in buying Rhythm & Hues after it emerges from bankruptcy, the individual said.

Rhythm & Hues had hoped to avoid bankruptcy and had secured a $20 million bridge loan from three studios to keep it afloat until its sale to Prime Focus could be completed. The money would have been used to keep Rhythm & Hues running through April so it could finish its work on several major projects, including "The Hunger Games: Catching Fire," "R.I.P.D." and  "Percy Jackson & the Sea of Monsters." It is not certain how the loan will be affected.

Under that pact, Universal, Twentieth Century Fox and Warner Bros. planned to step in to float cash to the company, according to a different individual with knowledge of the deal. Though the studios were poised to lend the money, at least one of the them believed that it would be wiser for Rhythm & Hues to go through the bankruptcy process, the individual said.

Rhythm & Hues boasts more than 1,400 employees and has branches in India, Malaysia, Taiwan and Canada. It is headquartered in Los Angeles.

VFX Soldier, an effects industry blog that broke the news of the filing, reported that Rhythm & Hues has told employees that payroll is delayed.

Rhythm & Hues' difficulties became grave after a major project canceled work with the company last year. The visual effects industry is a low-margin one, insiders tell TheWrap. It is also a business that has been hard-hit by runaway productions that have been lured away by lucrative film tax incentives offered by foreign and state governments.

Several effects shops have succumbed to financial difficulties in recent years, including Digital Domain, which filed for bankruptcy and was acquired by Galloping Horse America and Reliance Mediaworks last September.