Major Relativity Media Lender Challenges Studio on Residual, Guild Payments

Manchester Securities objects to bankrupt company’s “perceived necessity” in paying writers, directors, actors before other creditors

Manchester Securities, a significant Relativity Media lender, is objecting to the studio’s request to pay over $36 million it owes in residuals and creative guild fees.

In a new court document filed in the New York Bankruptcy Court on Wednesday, Manchester contested the “perceived necessity” for Relativity to settle up with various actors, writers and directors who have worked on its film and TV projects.

Relativity has argued that it’s crucial to satisfy such debts and remain in good standing with the respective Hollywood guilds so that new and ongoing film and TV productions can move forward. The studio is currently in production on several projects, including the CBS drama “Limitless.”

Manchester, which is owed $137 million from Ryan Kavanaugh’s embattled company, worries that a majority of debt might go unpaid if a proposed sale of Relativity is approved at its current offer of $250 million.

Relativity’s request to pay residuals and guilds “raise concerns that payment might improperly elevate one group of prepetition creditors above other similarly situated prepetition creditors,” attorneys for Manchester said in a motion to U.S. Bankruptcy Court Judge Michael Wiles.

Manchester is asking that any proposed residual or past due guild payment be capped after October 31, or directly after the sale of the company, to level the playing field for repayment of all creditors.

Relativity Media and Manchester Securities did not immediately return TheWrap’s request for comment. Representatives for the Screen Actors, Directors and Writers Guilds have yet to respond to the filing.

Objections to the proposed sale have been pouring into Wiles’ court since a group of senior lenders — Anchorage Capital, Falcon Investments and Luxor Capital — put forth  a stalking-horse bid for the company’s assets. Wiles recently delayed a second bankruptcy hearing, allowing more time for competitive bids to be submitted.

On top of creditors’ attempts to secure full or partial repayment for what they are owed, Relativity is battling numerous legal maneuvers by contentious P&A lender RKA Financing, which claims the company and Kavanaugh committed fraud and misappropriated funds. Kavanaugh has denied those charges.

The increasing number of parties with a vested stake in Relativity’s bankruptcy are expected to return to Wiles’ courtroom on August 25.