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Blockbuster: Summit Seeks to ‘Derail’ its Bankruptcy

18 Feb, 2011 By: Erik Gruenwedel


Bankrupt Blockbuster Inc. is accusing Summit Home Entertainment of undermining its Chapter 11 proceedings while attempting to coerce payment for disc shipments ahead of other creditors, among other allegations.

Dallas-based Blockbuster, which filed for Chapter 11 protection last September, was responding to a Feb. 3 complaint Summit filed with U.S. Bankruptcy Court in New York that demanded immediate payment of more than $9 million for hundreds of thousands of discs of The Twilight Saga: Eclipse, The Hurt Locker and Red, among others, shipped to Blockbuster stores.

Summit alleged that Blockbuster in a Jan. 28 phone call said it could not pay for the discs due to restrictions imposed by its debtor-in-possession creditors. The studio claims Blockbuster is required to pay for product shipments within 60 days.

In its Feb. 17 court filing, Blockbuster is asking the judge to deny the Summit motion, claiming that under bankruptcy law it is not obligated to pay in full any administrative and/or product expenses on demand.

It says that by doing so, there could result a “run on the bank” by other creditors looking for immediate full payment, which could derail Blockbuster’s entire Chapter 11 process.

Blockbuster claims Summit failed to establish the tenets mandating immediate payment, including prejudice and financial hardship. Indeed, Blockbuster cited the studio’s website whereby it claimed it had access to more than $1 billion for the development, production and acquisition of filmed entertainment.

“Nor does the motion provide any figures that would tend to show that the $9.3 million constitutes a substantial amount for Summit,” according to the complaint.

In fact, Blockbuster claims Summit knew the retailer was insolvent when it signed a post-Chapter 11 distribution agreement Nov. 17.

“Summit cannot show that [Blockbuster] innocently or fraudulently misrepresented their intent to pay Summit,” the filing stated. “As soon as Blockbuster was aware that their ability to use their DIP facility to make administrative expense claims was being severely restricted by their DIP lenders, they made Summit and other administrative expense claimants aware of the situation to limit the harm to these claimants.”

The court will hold a hearing on the matter Feb. 24.

Separately, the court scheduled a March 17 hearing regarding a motion filed by a group of landlords seeking payment on past-due rent regarding 38 Blockbuster stores.

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