Blockbuster Headed to Bankruptcy Court Thursday

A federal judge is expected to rule on whether the struggling rental chain will stay in business or get liquidated.

A federal bankruptcy judge is expected to rule Thursday on whether struggling rental chain Blockbuster will stay in business or get liquidated.

Both sides will present their arguments before U.S. Bankruptcy Judge Burton Lifland, who has previously expressed skepticism of the proposed plan to keep the company in business, according to the Wall Street Journal.
 
Those opposed to Blockbuster's plans include several movie studios as well as the government's bankruptcy-court representative.
 
Twilight studio Summit Entertainment and an official creditors committee want the judge to reject a proposed sale of the company for $290 million to senior bondholders led by New York-based hedge fund Monarch Alternative Capital. They argue that liquidation -- which would mean shutting down the 5,000-store chain -- would help put a stop to losses and also ensure they get repaid for product shipped to the company.
 
Those in favor of liquidation say that the company's current plan violates bankruptcy law in that it allows for certain creditors to receive proceeds from sales instead of the studios.
 
Blockbuster is seeking the judge's approval on the sale. At the same time, a WSJ source said the company is in talks with other potential bidders in the hopes of getting a better offer. Blockbuster also reportedly is looking at making changes to the auction terms that the judge has to approve that would provide more money to studios and offer better guarantees about the condition of DVDs shipped to the company.
 
The WSJ reported that the studios were in discussions with Blockbuster's bondholders Wednesday, which could end up buying the company more time.
 
On Tuesday, Warner Bros. filed court papers saying that it's owed more than $20 million by Blockbuster and demanding immediate repayment for DVDs and other products shipped to the company.

Blockbuster declined to comment to the WSJ.

The hearing begins at 10 a.m. in Manhattan.

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