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NSB converts Ch. 7 into Ch. 11

NSB Corp., the former Hemdale Film Corp., has converted the involuntary Chapter 7 liquidation bankruptcy filed by angry creditors Sept. 7 into a Chapter 11 reorganization.

The conversion filing late Thursday came hours after company executives hired the law firm of Danning, Gill, Diamond and Kollitz to represent them.

Trade and talent creditors, who filed the involuntary Chapter 7 petition against the company two months ago, are reportedly planning to seek the removal of current management–chairman John Daly, president Derek Gibson and senior vice president of finance Rene Rousselet–and request a court-appointed trustee to manage the company’s restructuring, sources said late Friday.

NSB management is currently acting as debtor in possession and overseeing that anticipated restructuring.

NSB’s attorney David Gill said the company would “absolutely” oppose any effort to boot management. “We don’t know of any grounds for a trustee to be appointed” at this time, he added.

But Stephen Chrystie, an attorney representing the creditors, said: “The trade creditors will not feel comfortable until a trustee is put in place.”

Neither Daly nor Gibson were available for comment late Friday. Rousselet deferred any remarks to Gill.

Appointing a trustee

For Bankruptcy Judge Kathleen Lax to appoint an outside trustee, the creditors must first prove that management is dishonest and incompetent or had seriously mismanaged NSB affairs.

To prove that, the creditors–including the three Hollywood guilds–and their counsel must cull the evidence from company documents. Examination of the company’s documents, including general ledgers, ledgers of every Hemdale picture and every transfer of funds in and out of the company, will be reviewed Nov. 11 and 12, sources said. After the creditors gather their evidence, their attorneys will probably file the motion seeking a trustee.

‘Broad discovery’

“What they have filed so far is an extremely broad discovery request,” noted Gill. “That request for company documents is very onerous. We will have to discuss this with them. We have already begun open discussions with the creditors and their attorneys.”

The trade creditors, including director James Cameron and producer Gale Anne Hurd, are represented by Chrystie and are reportedly owed about $ 35 million. The guilds are owed a combined $ 8 million and NSB’s key lender, Credit Lyonnais , is due about $ 80 million.

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