Relativity Media CEO Ryan Kavanaugh engaged in “obstructionist efforts” to avoid a Chapter 11 bankruptcy filing and erroneously believed that the studio was worth $2 billion, former Chief Restructuring Officer Brian Kushner said today in a blistering response to the company’s charge that he mishandled its affairs.
Kushner says in a court filing that his company, FTI Consulting, has not been paid the $4.58 million in fees and $251,504 in expenses Relativity owes for the work beginning this summer to steer the entertainment company through the bankruptcy process. It filed for Chapter 11 protection on July 31.
“It is no secret that Mr. Kavanaugh did not want to hire an outside firm” to manage its affairs, Kushner said. “Mr. Kavanaugh stated to me on several occasions during the pre-petition period of Summer 2015 that he did not want nor would he even consider the Debtors’ filing for bankruptcy and/or selling its assets. Rather, Mr. Kavanaugh worked, unsuccessfully, to raise sufficient financing mainly through equity investments while the liquidity position of the Debtors deteriorated.”
Indeed, Kushner says that due to his pessimism about Relativity’s prospects “there was almost instantaneous animosity between Mr. Kavanaugh and FTI generally and me specifically. As a result, as my team and I became more integrated into the Debtors’ businesses, Mr. Kavanaugh became increasingly unavailable, focusing even more on his attempt to woo new investors, ignoring the immediate liquidity concerns of the Debtors.”
The differences continued to infect their relationship when Relativity put itself up for sale, and it appeared that nobody would offer more than $250 million committed by senior creditors collectively known as the Stalking Horse Bidder.
Kavanaugh’s “attempts to raise equity on a higher valuation in the summer before the Petition Date failed,” Kushner says. “Even so, Mr. Kavanaugh told the Board that professionals working for him personally had valued the Debtors at $2 billion. I am not aware of any bid received by the Debtors on any of its assets that comes close to supporting that type of valuation.”
The creditor group ultimately just forgave $125 million worth of debt in return for control of Relativity Television.
Among the many Kavanaugh complaints to which Kushner responds is one charging the former CRO with preventing the release of the film Masterminds overseas ahead of a domestic release. “By failing to deliver the film to the international distributors, Mr. Kavanaugh alleges, I hindered the Debtors ability to pay down debt associated with the film.”
But Kushner says that senior execs including then-Relativity Studios President Tucker Tooley said that “an international release ahead of a domestic release would greatly impair the domestic value of the film” and interfere with some contractual rights.
The “most ridiculous grievance” Kavanaugh makes, according to Kushner, involves a screening of the Halle Berry film Kidnap for FTI personnel. The former CRO allegedly “became inappropriately irate when the producers refused to deliver a print of the film to be screened and the costs in the thousands of dollars was an unneeded expense on the estate.”
But it was Tooley and then-studio EVP Matt Alvarez who suggested the screening, which would have cost less than $1,500, Kushner says. Turns out that when he arrived at the screening, he learned that producers wouldn’t release it for the showing.
He, Tooley and Alvarez became concerned about “the prospect for a lengthy fight over an asset of the estate, especially when this film was already embroiled in litigation with RKA Film Financing, alleging Mr. Kavanaugh’s misuse of print and advertising funds for corporate purposes.”
Relativity, for its part, says: “No one has more passion for Relativity than Ryan Kavanaugh, and he has worked tirelessly to strengthen Relativity’s balance sheet and capital structure. FTI made numerous missteps that cost Relativity and its lenders millions of dollars, and this filing represents little more than sour grapes following the firm’s termination by Relativity earlier this year. Kavanaugh continues to work with the Board and all advisors to guide the company toward emergence from Chapter 11 bankruptcy with a robust slate of content and positioned for long-term success.”