Inverness Distribution Ltd., the Bermuda-based film distributor linked to the producer of “Young Guns” and “Last of the Mohicans,” filed for bankruptcy after royalties for movies declined.
Inverness, formerly known as Morgan Creek International, listed debt of as much as $100 million in a Chapter 15 petition filed today in U.S. Bankruptcy Court in Manhattan. It didn’t include an estimate of assets. The company changed its name in April 2010 and works with Morgan Creek Productions, producer of films including “Robin Hood, Prince of Thieves” and “Ace Ventura: Pet Detective.”
Bermuda courts appointed liquidators for Inverness on Feb. 28 because it is “deeply insolvent, has breached its contractual obligations, (and) was managed by individuals whose interests conflict with those of Inverness,” Michael Morrison and Charles Thresh, foreign representatives for KPMG Advisory Ltd., said in court papers.
James Robinson, the company’s president and director until its bankruptcy, has been the sole shareholder since 2004, according to the filing. Chapter 15 is used by a company to block creditor lawsuits in the U.S. or to help organize U.S. creditors while it reorganizes in another country.
Most of Inverness’s assets are contractual rights to distribute films produced by Morgan’s Creek to theatres, home video markets and television through agreements with third parties including Warner Brothers and NBC Universal, according to court papers.
Payments from major U.S. movie studios for television and home-video rights “experienced a dramatic and unexplained decline,” in the months before bankruptcy, Thresh and Morrison said. For some film libraries, payments plunged 71 percent in the last quarter of 2010, according to the company’s filing.
Inverness hasn’t explained the declines, and entered new distribution agreements without telling its lenders, Thresh and Morrison said.
Current lenders under a $150 million loan taken in 2005 are Societe Generale (GLE), as agent to the loan, and Santander UK Plc, ING Bank NV, Bank of Ireland and Commerzbank AG. Inverness has failed to make payments since February 2010. In January of this year, the agent declared the $74.1 million balance due.
As collateral for the loan, Inverness gave the lenders’ agent to rights to distribute, lease, license, sell, distribute or broadcast its movies.
Inverness joins in bankruptcy movie-rental chain Blockbuster Inc. (BLOAQ), whose relationship with movie studios was challenged by new distribution models. Blockbuster filed for bankruptcy in September, saying sales fell while rival Netflix Inc. grew by renting movies online and through the mail.
Universal Studios, Sony Pictures Home Entertainment Inc., Twentieth Century Fox Home Entertainment and other studios said they had claims for movies they continued to ship during Blockbuster’s bankruptcy. Blockbuster’s lenders argued that movie titles were given to the company, not leased.
The case is In re Inverness Distribution Ltd. 11-12106 U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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