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Notes on Complexity: The Weinstein Company Chapter 11 Hearing #1

posted by Melissa Jacoby

Some rarely-heard terms at The Weinstein Company's March 20 chapter 11 first-day hearing: sexual harassment, sexual assault, rape.

A more common utterance among TWC representatives: complex. The industry, the capital structure, the lending arrangements. All complex. Complex complex complex complex complex.

Part of the complexity, TWC said, comes from the fact that some collateral is governed by the Uniform Commercial Code while other collateral (certain intellectual property) is governed by other law. Yes - secured transactions professors keep saying this mixture is difficult to handle especially at the remedial/recovery stage. Another part of the complexity, according to TWC, is that the property interests have been sliced and diced into... hold on, this sounds familiar. 

What if anything is hiding behind this complexity? If TWC and the sale proponents get their way, the mystery likely will be buried.  The company and other proponent of a quick sale (which includes the sale of avoidance actions) says this sale needs to be done ASAP. 

TWC does not look like a melting ice cube now. It melted in the fall of 2017. Claimants need as much, if not more, protection in manufactured ice cube cases as in real ones, especially if the capital structure is so, well, complex. Complexity and speed are not the best of friends. If claimants are going to be denied full process, quick sale proponents need to post an Ice Cube Bond. Otherwise, a sale of TWC should happen through a plan, with all of the constitutional and statutory hurdles that were supposed to be necessary for the extraordinary exercise of federal court power that TWC seeks.

TWC's representatives also emphasized how business judgment should be respected. From the outside, it looks like TWC terminated Harvey Weinstein only when the news media blew their cover on the track record of heinous allegations. Sure, there is a new CRO, but are all who were complicit in the cover up really out of the picture now? 

A lawyer for the motion picture guilds said at the hearing that the guilds have had "difficulty" with the debtor pre-bankruptcy, and that the case calls for "adult supervision."  Another objector (docket #68)  said at the hearing that it heard from third parties that TWC had been "flagrantly" breaching agreements and misdirecting payment - a state of affairs feared to be the tip of the iceberg, but there had not yet been time to do a full investigation. 

A particularly interesting portion of the hearing involved debtor-in-possession financing. Among other reasons, TWC said it preferred to allow an existing lender to offer the DIP financing because that lender understood the complexity of the business and collateral package. Is chapter 11 practice now at a place where a DIP argues with a straight face that, for continuity purposes, it is better off borrowing money at higher interest rates and higher fees, from an existing lender with incentives that unlikely to align with the best interests of the estate overall? That did not go unchallenged, however. In addition to allowing another potential lender to be heard, the court asked a series of reasonable questions that indicated concerns about the cost of the proposed deal for the bankruptcy estate, and then took a brief recess. Then the proposed lender reported to the court the fees would be reduced.  The court approved the financing on an interim basis to avoid irreparable harm but will be looking at this issue fresh when TWC seeks the final order for financing.

The U.S. Trustee is having a creditors committee formation meeting this week. That committee has a lot to investigate.

The TWC enterprise might be complex. But that's not what this case is about.

 

 

 

 

 

Comments

The term "Ice Cube Bond"takes its name from cancer wasting value of the debtor's business. However, the rationale for such a bond/holdback also applies when there are unresolved questions about the validity and priority of claims that cannot be determined prior to the sale.

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