MGM Studios Files for Chapter 11 Bankruptcy Protection, yet Still Able to Finance "The Hobbit"
On Wednesday, November 3, 2010, MGM, Inc., one of the most powerful production studios in the world, filed for Chapter 11 Bankruptcy. Chapter 11 is commonly referred to as the corporate equivalent of Chapter 13 Bankruptcy, in that the person or business continues to work while handling many of Creditors' claims on an approved payment plan. Like a Chapter 13 Bankruptcy, Chapter 11 is defined as a financial restructuring in which a petition (either voluntarily or involuntary) is filed on behalf of the debtor. In addition, a debt management plan is submitted to the court where the twenty (20) largest creditors vote to accept or reject the plan. The Court may order that the parties make revisions to the plan. Once the plan is accepted, the debtor becomes the fiduciary of his or her business on behalf of the Creditors. If at any time the debtor breaches that fiduciary duty, or is determined by the court to be an ineffective manager, the court may appoint an independent trustee to oversee the restructuring process. Chapter 11 Bankruptcy can be very expensive and may take many years before the company can successfully emerge. The high cost and length of time is the reason that less than 10% of companies under Chapter 11 protection are able to continue operating after completing a plan. It does, however, permit the debtor to continue operations while in bankruptcy.
MGM's creditors are currently backing a plan that will allow the studio to retain its $40 million investment in the upcoming production of "The Hobbit." MGM's creditors are most likely supporting this decision due to the success of the Lord of the Rings trilogy, which has grossed $2,915,155,189 billion to date. Currently, MGM plans to release "The Hobbit" in two parts, and has the potential to realize an exponential return on its investment. As this point, MGM has halted production on the remainder of its planned films. Therefore, if "The Hobbit" does not produce its expected return, MGM may find itself in the undesirable 90% of businesses that fail after filing for bankruptcy.
If you have questions concerning Corporate Bankruptcy, please contact a bankruptcy attorney with Wood, Atter & Wolf, P.A. for a free consult.
