Relativity Bankruptcy: Judge Delays Reorganization Approval, Movie Releases Hang in Balance

Company’s lawyers offer to screen “Masterminds” in effort to accelerate process

U.S. Bankruptcy Judge Michael Wiles approved the terms of Relativity Media’s Chapter 11 reorganization plan, but postponed a final confirmation hearing from Jan. 15 to Feb. 1, a move that a lawyer for the beleaguered film company said could damage the business.

A Jan. 15 confirmation would have allowed the company to exit Chapter 11 by Jan. 31, which attorney Richard Wynne from Jones Day called a “critical” date.

“We have films we would like to release starting at the end of March and we need at least two months for trailers to be shown … We need enough lead time to get our movies out,” said Wynne. He even offered to screen “Masterminds” for the judge in chambers.

Relativity’s bankruptcy plan filed in November and amended several times, most recently this week, includes a slate of seven films funded in part by a new P&A/Ultimates facility of up to $250 million. It also calls for a $100 million capital increase. Most of the financial agreements have not yet been finalized.

Judge Wiley said he sympathized with Relativity’s need for speed given the unique demands of the film business, but “I have due process issues and just can’t compress the process.” He said creditors need more time to review the amended plan.

The judge accommodated certain objections by creditors, telling Relativity to make its latest financials easier to find online, for instance, and to describe in more detail any conflicting rights issues in its planned film slate.

He also asked the company to include a written commitment that it would inform creditors of founder Ryan Kavanaugh‘s ultimate stake in the business as soon as that becomes clear. Some creditors felt that Kavanaugh’s eventual position, which will be determined in the capital increase, has been glossed over.

Wiley took Relativity’s side against debtors who would prefer financing deals be signed and sealed for the restructuring to be approved.

“It’s not unusal that financing agreements are not in place before a disclosure statement is circulated,” he said. The reorganization document outlines a proposed capital structure, not a final one, he noted.

The plan will now be sent for a vote to creditors and other parties in the process.

The hearing started an hour late, with the courthouse mobbed by lines for a few high-profile cases, including one involving the case of jailed financier Bernie Madoff. It also lasted longer than usual as the judge went painstakingly through a list of objections and requests for clarification by creditors.

Relativity filed for bankruptcy last summer.