Domain Digital Wins Approval of Asset Auction Timeline

Digital Domain Media Group Inc. (DDMGQ), the special-effects company behind the movies “Transformers” and James Cameron’s “Titanic,” won initial court approval to auction itself off 10 days after filing bankruptcy.

U.S. Bankruptcy Judge Brendan Linehan Shannon today said he would approve the “unprecedented” timeline only because Digital Domain claimed it would be forced to liquidate and fire all its employees.

“I don’t offend easily, but you have managed it,” Shannon told lawyers in the courtroom. He said the Sept. 21 auction date was so soon after the bankruptcy filing, that he would consider moving it should creditors file objections that convince him it was necessary.

The company, with operations in Florida, California, Canada, India, China and Abu Dhabi, filed bankruptcy yesterday with plans to hold an auction for most of its assets. A unit of Searchlight Capital Partners LP has agreed to be the initial bidder with a $15 million offer, according to court papers.

The timeline is embedded in two court documents Shannon said he would approve: a so-called debtor-in-possession loan to fund the company’s operation during the bankruptcy and the procedures that will govern the auction.

Shannon said that both approvals are considered interim because they came on the first day of the company’s bankruptcy case. Earlier in the hearing, he had said he wouldn’t approve the timeline and told the company to delay the auction for a few days.

Production Schedules

Company attorney Robert J Feinstein said the company couldn’t afford to wait that long because of the pressure being put on the business by the tight production schedules in Hollywood.

During the hearing, Digital Domain officials testified that the survival of the company was at stake because their main customers, Hollywood’s biggest movie studios, had threatened to cancel work unless the special-effects business was sold immediately. The studios were worried about the financial stability of the Digital Domain.

“They want what they want, and when they say immediately, they mean it,” Feinstein said in court.

Digital Domain blamed its bankruptcy yesterday on a cash crisis that hit less than a year after the company went public. The Port St. Lucie, Florida-based company, with 765 employees, said it also sought court protection in Canada.

The company, which counted former Miami Dolphins football star Dan Marino among its investors, had assets of $205 million and debt of $214 million as of June, according to Chapter 11 papers.

The case is In re Digital Domain Media Group Inc., 12-12568, U.S. Bankruptcy Court, District of Delaware (Wilmington).

To contact the reporter on this story: Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net

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