Movie Gallery Inc., the video-rental chain that began shuttering stores in February, won a bankruptcy court’s approval of a liquidation plan that will wipe out shareholder value.
U.S. Bankruptcy Judge Douglas O. Tice Jr. approved the plan today at a hearing in Richmond, Virginia. Under the Chapter 11 plan filed July 1, general unsecured creditors will receive a pro rata share of a $5 million liquidating trust. All remaining assets will be transferred to certain secured creditors, court papers show.
“Those secured creditors will collectively allow $5 million to be funded from their collateral to the unsecured trust and waive hundreds of millions of dollars in deficiency claims so that a distribution could be made to the debtors’ unsecured creditors,” Movie Gallery attorneys said in court papers.
Movie Gallery sought bankruptcy protection on Feb. 2, the second time since 2007, and subsequently closed all of about 2,600 stores. The Dothan, Alabama-based chain, which is liquidating the last 1,028 locations, got approval in July to sell warehouse inventory.
The company first sought protection in October 2007 after two years of losses in the face of increased competition from Netflix Inc., which rents movies by mail, and Coinstar Inc.’s Redbox DVD-rental kiosks. Blockbuster Inc., the world’s biggest movie-rental company, filed for bankruptcy protection in New York last month.
The company listed debt of $500 million to $1 billion and assets of as much as $50 million in Chapter 11 documents.
The case is In re Movie Gallery Inc., 10-30696, U.S. Bankruptcy Court, Eastern District of Virginia (Richmond).