Blockbuster Inc., accused by Summit Distribution LLC of being unable to pay $1.6 million owed for DVDs of “The Twilight Saga: Eclipse,” should liquidate, the creditor of the bankrupt movie-rental chain said.
Summit, an independent production and distribution studio, said yesterday it wants Blockbuster to convert from a Chapter 11 bankruptcy reorganization to a Chapter 7 liquidation. The world’s largest movie-rental company is “administratively insolvent,” or unable to pay the costs of the case, Summit said in a filing in U.S. Bankruptcy Court in Manhattan.
“The debtors informed Summit that the debtors would not pay Summit with respect to products that were shipped post-petition because the debtors lacked the funds to do so,” lawyers for Summit wrote. Blockbuster didn’t dispute its obligation to Summit, they said.
Summit is owed $9.5 million, a “significant amount for a film distributor,” according to the filing. Summit also wants the bankruptcy judge to modify the so-called automatic stay so it can recover goods it already shipped.
Blockbuster, based in Dallas, filed under Chapter 11 with an outline of a reorganization plan supported by holders of 80 percent of the $630 million in 11.75 percent senior-secured notes. The company listed assets of $1.02 billion and debt of $1.46 billion when it sought court protection on Sept. 23.
Martin Sosland, a lawyer for Blockbuster, and Richard Kanowitz, a lawyer for the company’s creditors, didn’t immediately return phone calls seeking comment yesterday.
Sosland said Jan. 20 that Blockbuster isn’t looking for more money, contrary to a Jan. 18 report in the Wall Street Journal that it was seeking another $200 million to $250 million.
“We don’t even have any money drawn under the DIP,” Sosland said at the time, referring to the $125 million debtor-in-possession loan that is funding Blockbuster’s operations in bankruptcy.
Blockbuster last reported a profit in the first quarter of 2009. It posted a net loss of $53.5 million on sales of $736.6 million in the third quarter of 2010. Cash and cash equivalents stood at $52 million as of Oct. 3, the company said in a regulatory filing.
“It’s hard to say this debtor is anything but insolvent,” U.S. Bankruptcy Judge Burton Lifland said Jan. 20 while rejecting a bid by shareholders for a probe of the company’s value.
The company’s deadline for filing a plan and disclosure statement describing it has been extended several times and is now today. The deadline to get court approval for the disclosure statement was moved to Feb. 11 from Jan. 15, Blockbuster said last month.
Lifland on Jan. 20 approved Blockbuster’s requests to close stores, reject unexpired leases and sell inventory, after hearing that objections by several landlords were resolved. The company, which had about 3,000 stores, seeks to close 110 underperforming stores before the end of this quarter, according to court papers.
Since the bankruptcy filing on Sept. 23, Blockbuster has rejected leases on 220 locations, most of which were closed beforehand, and by the end of 2010 had shuttered another 72 stores. Blockbuster has until April 21 to decide which unexpired leases at its stores to reject.
Carl Icahn asked Lifland last week to dismiss a lawsuit filed by creditor Lyme Regis Partners claiming the billionaire investor converted his equity stake in Blockbuster to debt to take control of the company after it reorganizes.
The case is In re Blockbuster, 10-14997, U.S. Bankruptcy Court, Southern District of New York (Manhattan).