Moshe Barkat, founder of Modern VideoFilm, ran the once-famous post-production house into the ground by systematically “looting” it into insolvency, according to court papers filed by Medley Capital, its main creditor and defendant in a $100 million fraud suit brought by Barkat that’s set for trial next month.
“Like many entrepreneurs, Barkat was an effective salesman but an incompetent, undisciplined and ultimately self-destructive manager,” Medley claims in a complaint filed in U.S. Bankruptcy Court (read it here). “Over time, Barkat’s corporate mismanagement and serial looting of the corporate till rendered MVF insolvent.”
Once an industry leader, the Burbank-based Modern VideoFilm provided postproduction and distribution services to the film and TV industry for more than 33 years. But Barkat lost control of the company in 2014 to Medley Capital, a billion-dollar investment fund that had loaned the company $50 million in 2012. When the company allegedly defaulted on the loan, Medley brought in the Deloitte Corporate Restructuring Group to manage it. Barkat was ousted, and it was sold in May 2015 to LA-based post-production house Point.360, which filed for bankruptcy protection last year but has restructured its debt and is still in business.
Barkat filed a $100 million fraud and breach of fiduciary duty lawsuit against Medley in August 2016, but Medley sought to have the suit dismissed. Superior Court Judge Daniel Murphy, however, denied Medley’s motions for summary judgment and ruled that there are enough triable issues to proceed to trial.
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Medley claims in the bankruptcy proceedings that Modern VideoFilm had been racking up huge operating losses every year since 1999. “Due to Barkat’s managerial incompetence and corporate looting, MVF has over $100 million in unpaid claims, and its only remaining assets are litigations claims.” In 2015, the year after Barkat was ousted, the company had less than $14 million in assets and more than $88 million in liabilities, Medley claims.
“One of the precipitating factors in MVF’s steady march into the realm of insolvency was Barkat’s serial looting of corporate cash,” Medley claims, accusing him of depleting the company’s corporate assets “for his own benefit” and “to the detriment of MVF’s other creditors, even after his employment was terminated in September of 2014.”
Barkat’s alleged “looting” of the company’s assets, Medley claims, included his “excessive compensation” – over $1 million a year in a number of years –and a loan of more than $4 million he received from the company “that he never repaid and never intended to repay.” Medley alleges that he also charged MVF $200,000-$300,000 a year in “purported” business-related travel and entertainment expenses.
Medley also says he caused the company to transfer more than $500,000 to GB Engineering, a company he owned, “for less than reasonably equivalent value,” and to make payments to his ex-wife and two daughters totaling nearly $687.000 “for less than reasonably equivalent consideration.”
The complaint also alleges that the company’s liabilities “have exceeded its market value for over ten years,” and that at no time during the past decade has Barkat’s shareholder interest in the company had “any realizable value.”
Medley said that it first turned Barkat down for a $50 million loan to refinance an $80 million loan from GE Capital “due to MVF’s distressed financial state.” Medley said that “a refinance only became possible”after GE Capital agreed to reduce its loan balance by $30 million. Without that, MVF “would have been forced into bankruptcy in 2012” or forced into foreclosure.
Medley and its affiliates made the $50 million loan in 2012 under strict compliance covenants, but says that Barkat “continued down the same path that brought MVF to the brink of financial ruin.” Then, “to protect its collateral from Barkat’s ongoing mismanagement, Medley exercised its contractually authorized shareholder voting rights and removed Barkat from MVF’s board of directors.”
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