Studios Push Blockbuster Canada Into Receivership6 May, 2011 By: Erik Gruenwedel
Unit put up as collateral by U.S. parent following bankruptcy.
A Canadian judge has ordered Blockbuster Canada be put into receivership after major Hollywood studios called in payment of more than $67 million owed them by the chain’s U.S. parent.
The May 4 order by the Ontario Superior Court of Justice means the 440-store chain with nearly 5,000 employees is now in the hands of receiver Grant Thornton Ltd., and will likely be put up for sale similar to Dallas-based Blockbuster.
Blockbuster Canada, which was not part of Blockbuster’s Chapter 11 bankruptcy last September, was put up as collateral to the studios in order to maintain shipments of new release DVD and Blu-ray Disc movies. The chain was considered profitable despite the emergence of Netflix streaming last summer.
Following the $320 million sale of Blockbuster to Dish Network, the satellite TV operator, in court filings, said it would agree to paying no more than 75% of monies owed studios, excluding outstanding revenue-sharing agreements.
Edward Woo, analyst with Wedbush Morgan Securites in Los Angeles, said that stance by Dish is what prompted the studios to act on Blockbuster Canada.
“The studios got Blockbuster Canada to guarantee debt for Blockbuster parent, so they are now trying to recoup their debt since there's nothing left with the parent,” Woo said.
In a statement, Grant Thornton said Blockbuster Canada stores would continue to operate as usual in the near-term as it identifies interested parties. Stores employees are being paid weekly instead of bi-weekly, including any outstanding vacation pay. Stores are no longer selling gift certificates.
"The process is intended to identify parties interested in purchasing Blockbuster Canada's enterprise and assets," Thornton spokesperson Michael Creber said in a statement. "The focus today is to stabilize operations and maximize the situation for all the stakeholders, creditors and employees the best we can in the circumstances."
Regardless, Canadian analyst Carmi Levy said he saw the writing on the wall for Blockbuster for some time.
"It was only a matter of time before the Canadian operations of Blockbuster followed their American operations to bankruptcy," Levy told a Canadian website. "We saw it coming and were simply counting the days.”