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Relativity Creditor Asks Court to Liquidate Struggling Studio’s Assets

An entity controlled by one of the company’s creditors wants a bankruptcy court to force Relativity into a Chapter 7 bankruptcy

One of Relativity Media’s major creditors filed a motion in New York bankruptcy court requesting that Relativity Media’s bankruptcy proceedings be converted from Chapter 11 to Chapter 7, which would pave the way for a liquidation of the studio’s assets.

According to the complaint filed by Relativity Secured Lender, an entity controlled by Chicago investor Joseph Nicholas, and JGJ Equity Holdings, Ryan Kavanaugh’s independent studio has not lived up to its end of the deal it struck last year as part of its bankruptcy proceedings.

Relativity emerged from Chapter 11 last year with a court-approved reorganization plan, but the company has failed to find an investor with the resources to recapitalize the company, which was a key part of the plan, and still owes about $14 million in unpaid legal and professional services bills, according to the complaint. The complaint also alleges that Relativity “will soon literally run out of cash” and won’t be able to afford its Beverly Hills headquarters.

“The Plan has failed in its essential purpose, as there has been no capital raise which was necessary to effectuate the Plan,” the complaint said. “Accordingly, several material defaults have occurred under the Plan.”

In the complaint, RSL alleges that it has not received any payments tied to its junior secured convertible debt obligations, which were intended to provide financing to help Relativity exit bankruptcy. JGJ claims that despite being a manager of the parent company, it has been shut out of Relativity’s affairs since September 2016.

“Given the material defaults under the Plan, the Reorganized Debtors’ ongoing losses and lack of liquidity, and the questions about the effectiveness and trustworthiness of management, it is necessary and appropriate for the Court to convert these cases to one under Chapter 7, so that a trustee may take charge of the modest remaining assets, liquidate them, and distribute the proceeds accordingly,” the complaint said.

A hearing on the matter has been scheduled for March 8 at 10 a.m. ET.

Pamela Chelin contributed reporting to this article.