Investment banker Houlihan Lokey has given up on finding any takers for Relativity and, as we reported late last year, the company is on the verge of Chapter 7, which means liquidation. An investor in the company officially motioned the U.S. Bankruptcy Court today to change Relativity’s Chapter 11 status to Chapter 7. This comes less than a year from when Relativity emerged from bankruptcy making big promises of financial stability to the court.
“The Plan contemplated a substantial captial raise in mid-2016, but this occurred,” the motion (read it here) on behalf of JGJ Equity Holding states. “Since September 2016, despite its status as a manager of the parent company, JGJ has been shut out of the affairs and operations of the Reorganized Debtors. Repeated requests for documents and information have been disregarded.” the only exception had to do with real estate deals. Other than that, the motion states, Relativity CEO Ryan Kavanaugh was acting beyond his scope “without the requisite authority and at odds with the terms of the controlling Operating Agreement.”
The motion cites operating losses in excess of $50 million and that the plan to pull Relativity out of bankruptcy “failed in its essential purpose, as there has been no capital raise which was necessary to effecutate” the financial health of the company.
More than $14M remains unpaid and other financial obligations have also been unmet, including a “required $30M payment due on June 30, 2016.” Therefore, “conversion to Chapter 7 is appropriate remedy,” the filing states. It also says that “Ryan Kavanaugh is currently acting without appropriate corporate authorization by freezing out co-management and has refused to provide information” at the same time they are trying to file tax returns.
Restructuring company Zolfo Cooper never left Relativity, a key indication that the company was likely not to make it. Joe Nicholas, who had been pumping millions into the studio to help keep it afloat, exited his post as co-CEO last year.
Senior lender Anchorage Capital — which was Relativity via RM Bidder (which is owed the $30M) — would have first lien if a Chapter 7 filing proceeds.