Relativity Creditor Wants To Know Where $69M In “Misappropriated” P&A Went

EXCLUSIVE: In a process that is hitting a lot more potholes on the road to Chapter 11 auction than the Ryan Kavanaugh-run Relativity likely anticipated, RKA Film Financing may be prove to be the biggest bump in the ride. With two lawsuits in New York State Court against Kavanaugh over $115 million in unpaid P&A loans and a motion in U.S. Bankruptcy Court to go into Relativity’s offices to get their hands on assets like the unreleased comedy Masterminds, RKA certainly likes to file a lot and ask a lot of questions. In a new motion Wednesday over the Chapter 11, the company now really wants to know where their money went — $69.4 million that was supposed to be used for P&A, to be precise.

“The fact that $69.4 million (over 94%) of the P&A Loans — or about 99% of total P&A budgets for the P&A Pictures — had not been spent on P&A raised obvious questions as to what Relativity Media and Kavanaugh have done with these funds,” says a motion for discovery filed literally at the eleventh hour (11:18 PM ET) last night (read it here). Claiming, as it has similarly in the state court cases, that $85,005,933 plus interest is outstanding over the P&A loans intended for the Kristen Wiig, Zach Galifianakis and Owen Wilson comedy Masterminds, the Halle Berry-starring Kidnap, plus Somnia and Disappointments Room, RKA wants to do forensics through all the books, accounts and receipts to see what went where — and if it really wasn’t supposed to. RKA says that of the $73.6 million drawn from the loans exclusively intended for P&A, a mere $1.7 million actually went to P&A. The rest of the money seems to “have been improperly used and/or misappropriated by Relativity Media and Kavanaugh,” the filing declares.

“The Requested Discovery seeks to reveal assets and determine the nature and extent of the Company’s estate through an inquiry into the Company’s potential payment of Ryan Kavanaugh’s legal fees, the D&O Policies of the Debtors that may provide coverage for the claims asserted by RKA and other creditors, and the account information for any and all accounts to which the proceeds of the P&A Loans were directed in contravention of the requirements of the applicable documents,” specifies the 10-page motion.

Tomorrow, Judge Michael Wiles will hold what looks to be a jam-packed hearing in NYC about whether to approve a $10.5 million loan to Relativity to get it though the bankruptcy process. The past few days have seen a flood of filing from creditors big, small and still to be determined who have objections and issues with how fast the process of selling off the complexly structured company is moving forward. If the $10.5 million is approved on Friday, it would be the second installment in the Debtor in Possession financing, following $9.5 million approved on July 31, the day after Relativity filed for Chapter 11.

While no hearing date or objection deadline was noted fo ron RKA’s motion and proposed order, you can be damn sure that this just opened up the Earth once again.

As they are in the NY Supreme Court actions, Benjamin Naftalis, Christopher Clark, Matthew Salerno and Eric Taffet of the NYC offices of Latham & Watkins LLP are representing RKA Film Financing in the Relativity Chapter 11.

This article was printed from