A significant number of Hollywood actors have received notices from the trustee in the Axium bankruptcy demanding they pay back the money they were paid in late 2007 — and threatening legal action if they fail to do so.
The Screen Actors Guild told Daily Variety on Sunday it’s in talks with the trustee, who’s agreed to hold off on any legal action. SAG would not disclose how many actors have received the notices but it’s asserting that SAG members should not have to pay back the funds.
Axium Intl., which had been the entertainment industry’s third-largest provider of payroll and accounting services, closed unexpectedly and filed for Chapter 7 bankruptcy on Jan. 8, 2008. In letters sent to actors last week, trustee Howard M. Ehrenberg asserted he had demanded the funds because he was required to collect all assets of the bankruptcy estate including monies paid to actors — which he termed “avoidable preferential payments” — that were paid within the 90 days before the bankruptcy filing.
“Even though these payments may have been perfectly proper when made, Sections 547 and 500 of the Bankruptcy Code require such transfers be returned to me if, as a result of the transfer, the payee received more than it would be entitled to receive in a Chapter 7 bankruptcy case,” Ehrenberg said in one of the letters.
Ehrenberg told recipients of the letters that they “may” wish to seek the assistance of an attorney and told them that they should respond within two weeks.
“If I fail to receive payment of the preference amount within two weeks from the date of this letter, I have instructed my counsel to commence appropriate legal action to avoid and recover the preferential payments,” the letter concluded. “Thank you for your prompt attention to this matter.”
In response, SAG’s deputy national exec director and general counsel Duncan Crabtree-Ireland said in a statement that Ehrenberg has backed off his threat of legal action for now.
“We are aware of these letters and are actively working to protect the interests of our represented performers,” Crabtree-Ireland said. “While we do not yet know how many of them may be affected, we do believe that the payments referenced are, in most cases, exempt and we are working with the bankruptcy trustee to resolve the issue. The trustee has agreed to defer any legal action against our represented performers to allow sufficient time to address these concerns.”
A Chapter 7 bankruptcy filing is designed to govern the liquidation of company assets. The Office of the U.S. Trustee named Ehrenberg as trustee for the Axium case on the day after the filing, which meant that he took over all finances and operations of the company.
The bankruptcy filing stemmed from primary lender Golden Tree Asset Management seizing $22 million from Axium bank accounts because the company defaulted on a $140-million loan. Ehrenberg said at the time that Axium had handled approximately $3 billion in 2007 in payroll and related services, was estimated to have assets worth more than $100 million and that the sale of the assets would be used to recoup money for creditors.