The Weinstein Co. Bankruptcy Is Getting Weird

Ally Canosa Toronto International Film Festival - Getty - H 2018
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Yes, The Weinstein Co. bankruptcy was already weird. It's not every day that a company files Chapter 11 after dozens of women come forward to accuse the company's founder of sexual misconduct. But if it's possible, the bankruptcy of TWC is becoming even more weird. Case in point is an objection filed on Friday by the Official Committee of Unsecured Creditors, a group that's dominated by some of Harvey Weinstein's alleged victims. 

As many know, when a debtor files for bankruptcy, that move pauses pending litigation. In order to re-activate a lawsuit, a party has to go to the bankruptcy judge and request relief from the automatic bankruptcy stay. Previously, as an example, six women who say they are Weinstein victims, including Louisette Geiss, convinced the judge to lift the stay on their class action.

Now, however, the Committee is telling the same judge not to lift a stay in a lawsuit brought by another alleged victim, Alexandra Canosa, a former associate producer on the Netflix show Marco Polo. She's not only suing The Weinstein Co., but also members of its board in a $10 million complaint that alleges sexual harassment.

Those board members got the case moved to a New York federal court, the same district that is overseeing the Geiss class action. The judge in Canosa's case told the board members to seek relief from the automatic stay so that TWC could participate in a motion to dismiss and potentially there could be coordinated discovery with the Geiss case.

And so the board members did exactly that. On Aug. 15, they filed a motion in bankruptcy court and acknowledged it was somewhat of an unusual situation as it is typically the plaintiff who would be seeking such a thing.

But again, it's getting even more weird because the victims-dominated Committee now wishes to stand in the way of activating a key piece of the lawsuit from Canosa. 

The Committee says it has a good reason.

"The most important factor that differentiates the Motion from Ms. Geiss’ request for relief from stay is that the Debtors’ insurance carriers are NOT providing the Debtors with a single dollar for defense of the Canosa Litigation," states the objection. "Every dollar spent on the Debtors’ defense costs reduces, dollar for dollar, the sparse unencumbered funds that are likely to remain from the sale to Lantern."

Lantern would be the entity that bought TWC's assets (still in flux) out of bankruptcy for $289 million. With significant claims on the estate — including potentially from Weinstein, who in court papers on Thursday hinted he'd be pursuing claims against the debtor's estate — that's not quite enough money to distribute to make everyone happy.

According to the Committee, TWC lawyers have provided "preliminary distribution estimates ... that showed negligible recoveries to unsecured creditors. Moreover, those estimates included claims estimates for the secured claims of the three entertainment guilds (Directors Guild of America, the Screen Actors Guild - American Federation of Television and Radio Artists, and Writers Guild of America) at numbers that are substantially lower than the secured claims that are asserted against the Debtors. In addition, there are other secured and administrative claims asserted that were not included in the Debtors’ preliminary distribution estimates. If these claims are allowed as asserted, then absent a recovery on affirmative litigation, the Debtors’ estates will be administratively insolvent." 

In other words, there will be hardly anything from the $289 million to pay Weinstein's victims. The fact that the company's insurers are putting up a fight doesn't help. And thus, the opposition to the lifting of the automatic stay.

And that's not the only pressing decision for U.S. Bankruptcy Judge Mary Walrath at the moment. For example, Endemol Shine is seeking a stay lift, too, which is itself unusual because the case Endemol wishes to activate is a lawsuit — not yet filed — in England against Lantern over whether TWC's contractual rights on Peaky Blinders became terminated due to Weinstein's alleged malfeasance. As Endemol put it to Walrath on Thursday, "This Motion is necessary only because of the unusual limbo in which the parties find themselves, with the debtor Weinstein TV technically a necessary party to any litigation because the Agreement has not been assumed, but having no economic stake in the outcome."

The next hearing in the TWC bankruptcy is set to take place Wednesday in Delaware.