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Judge Barry Russell ruled Wednesday that a creditors group can proceed to develop a plan to reorganize ThinkFilm, Capitol Film and three other companies forced into bankruptcy that were overseen by David Bergstein.
The federal judge denied a motion by Ronald Durkin, a trustee overseeing the bankrupt companies, to convert the cases from a Chapter 11 bankruptcy reorganization to a Chapter 7 liquidation. Durkin had also offered the judge the option of dismissing the cases altogether.
Bergstein and his former business partner Ronald Tutor had strongly supported the idea of dismissing the cases. Tutor, through two companies he controls, claims to be the largest creditor in the case.
However, the judge’s ruling favored a group of creditors led by the Aramid Entertainment Fund, who were the ones who originally brought the action that forced the involuntary bankruptcy.
STORY: Judge to Rule Wednesday on Possible David Bergstein Case Dismissal
The Aramid led group has proposed loaning up to $4 million to the entities and reorganizing them to tap into the assets, so that the unsecured creditors have a greater chance of being repaid. That would include appointing a commercial agent to exploit the approximately 1,000 movies that are in the companies film libraries.
According to an earlier court filing, the reorganization would also include efforts to undo “fraudulent transfers” of assets such as the movies which were taken out of the bankrupt entities and moved into subsidiaries or other corporations.
The plan also includes taking actions to challenge the more than $100 million in creditor claims against the bankrupt companies made by Ronald Tutor and two companies he controls, Library Asset Acquisition Corp. and Zelus. The creditors believe Tutor should be considered an insider and thus should not be allowed to move forward as a creditor, secured or unsecured.
They also believe claims by Bergstein as a creditor should be disallowed.
In their filing, the creditors had pleaded to the judge not to convert or dismiss the cases, as that would reward Bergstein and Tutor for what they believe were improper and illegal actions such as backdating documents, filing incomplete tax returns and false creditor lists.
Durkin, who had also charged improper and illegal actions by Bergsten and Tutor , had opposed the creditors request for an extension of time to develop a plan of reorganization under Chapter 11, which the judge had now done.
The U.S Trustee had also filed a brief supporting dismissal of the cases, mostly it seems because they had not been paid some fees amounting to less than $3,000. Prior to the hearing Aramid stepped up and paid those fees to the U.S. Trustee.
The $4 million would be a loan from Aramid. The opposition to the trustees request to convert or dismiss, and the reorganization plan was signed by 14 of the 25 original petitioning creditors. The other ten, according to the filling, did not oppose their plan, but could not be reached in time to sign the filing request.
The creditors group also has said it intends to seek a new trustee to oversee the companies, who would replace Durkin, who was appointed by the court on an interim basis in March 2010, and later was made the permanent trustee in two stages, as the companies were actually put in bankruptcy.
The creditors are proposing the new trustee be John P. Brinkco, who is president of Sitrick Brincko Group, which describes itself as international management and communications consultants. Brincko is a partner in that company with Michael Sitrick, a well known PR crisis consultant.
Brincko’s past positions include being VP and chief financial officer of Max Factor and positions as a financial officer at International Paper and elsewhere.
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