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Relativity Media’s One-Time Partner Pushes for Liquidation of Failing Company (EXCLUSIVE)

Variety logo Variety 2/8/2017 James Rainey
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UPDATED: Struggling Relativity Media should be forced into a Chapter 7 liquidation, one of the struggling media company’s many creditors demanded in a filing with the U.S. Bankruptcy Court in New York Wednesday, according to documents provided by one of the lawyers in the case.

The motion comes from Relativity Secured Lender, an entity used by Chicago investor Joseph Nicholas to become one of Ryan Kavanaugh’s last partners, as the Relativity Media founder fought to resurrect his company after filing Chapter 11 bankruptcy in July of 2015.

While the filing does not name Nicholas, it was made on behalf of Relativity Secured Lender, which has previously been identified in court papers as the vehicle Nicholas used to invest in Kavanaugh’s company, which once had ambitions of competing with Hollywood’s big studios. The filing says “RSL is an undersecured creditor owed over $35 million.”

Relativity did not immediately respond to a request for comment.

Variety has previously reported that Relativity has been unable to raise enough capital to make new movies or to distribute old ones. It has been reduced to a handful of employees and faces possible eviction from its Beverly Boulevard offices for failure to pay rent.

Kavanaugh’s ongoing involvement in the company is unclear, following reports in December that he was stepping down as Relativity’s CEO. It was also reported that producer Dana Brunetti, brought on to help Kavanaugh run Relativity’s film studio, had stepped away from the company.

The filing Wednesday makes the case for pushing the company — which emerged from Chapter 11 protection in April — into a liquidation. “Given the material defaults under the plan, the Reorganized Debtors’ ongoing

losses and lack of liquidity, and the questions about the effectiveness and trustworthiness of management, it is necessary and appropriate for the Court to convert these cases to one under Chapter 7,” the filing says. It adds that the shift to Chapter 7 status would allow “a trustee [to] take charge of the modest remaining assets, liquidate them, and distribute the proceeds accordingly.”

The filing notes that many bills have gone unpaid since Relativity reorganized, including more than $14 million owed to bankruptcy lawyers and other professionals. Relativity “will soon literally run out of cash and be unable to make payroll or hold onto their Beverly Hills headquarters,” the motion from the Relativity creditor claims.

Nicholas’s investment company said in the filing that it turned to the Chapter 7 demand, in part, because Relativity’s Kavanaugh had been “freezing out” his one-time co-CEO by refusing to provide information about the company’s operations.

The filing says Relativity was supposed to be “co-managed” by Kavanaugh and another firm, JGJ Equity Holdings. The entity is presumably another Nicholas investment entity, though it is not identified as such in the legal document.

“Repeated requests for documents and information have been disregarded,” the legal filing says. “The only exceptions were when the company had isolated sales of property which required the consent of JGJ. Kavanaugh was simply operating without the consent or participation of JGJ.” Kavanaugh allegedly ignored repeated admonitions that he was acting without the proper authority, required by the the company’s post-bankruptcy operating agreement, Nicholas’s legal filing says.

Among other unpaid Relativity debts cited in the filing — $30 million that the company was supposed to pay “RM Bidder.” That entity was formed by three investment funds that had dumped hundreds of millions of dollars into Kavanaugh’s venture and then came together to snap up the company’s TV division during a bankruptcy auction. The investment funds were Anchorage Capital Group, Luxor Capital Group and Falcon Investment Advisors.

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