Court Still Awaits Relativity Financing and Executive Plans

Ryan Kavanaugh
Everett Collection/REX

UPDATED: Relativity Media returned to court Wednesday in its long-running battle to win approval of its exit from bankruptcy, though the real action took place outside the New York court room — with the company still trying to drum up proof that it has adequate financing and formal employment arrangements with its proposed new film executives — Kevin Spacey and his producing partner, Dana Brunetti.

The company still had not presented proof of those arrangements, which U.S. Bankruptcy Court Judge Michael Wiles has said he wanted to see before allowing Relativity’s emergence from bankruptcy to become effective.

Wednesday’s hearing instead focused on a convoluted claim by a would-be film writer and producer who said he was entitled to a place in the Relativity proceeding, a claim which the company rejected and Judge Wiles said he would take under submission.

Lawyers for the company previously had told Wiles that by Wednesday’s hearing they expected to have proof of new investment in the company — once projected at up to $100 million, but scaled back more recently to $20 million, and of completed employment arrangements with Spacey and Brunetti. But as of the conclusion of the proceedings, around noon ET, those documents had still not been filed with the court.

“One thing I am sure of is that everyone is working very hard to try to get this finished so this case is no longer here,” Wiles said at the end of the hearing. He noted that he had not imposed a deadline for the information to be brought forward but added: “There are obviously practical deadlines as to the DIP lenders and the cash collateral order and other things that will come up from time to time.” There was no indication as to how long it would take before the practical considerations could become problematic for Relativity.

The company issued a statement, noting the judge had given his conditional approval on Feb. 8 and adding: “The company is working diligently to fulfill these conditions. Once the plan is effective, Relativity will officially emerge from Chapter 11 as a stronger, well-capitalized company that is well positioned for growth and success.”

Wiles previously had given conditional approval to a departure from Chapter 11 for Ryan Kavanaugh’s company. But he had also called it “odd” that final financial plans — including $150 million in proposed production and distribution loans — had still not been obtained as the bankruptcy was supposed to be reaching its final days. Wiles suggested he was not comfortable letting the company out of bankruptcy if that information was not forthcoming.

Relativity filed for Chapter 11 on July 30, citing $1.2 billion in liabilities and assets with a book value of $560 million. The company held an auction in October, but there were no serious bids, outside of a commitment from three hedge funds to take over the whole company, while forgiving $250 million of the money owed them by Kavanaugh’s company. Instead, the hedge fund trio — Luxor Capital, Anchorage Capital and Falcon Investment Advisors — reconfigured their bid to be only for Relativity’s TV unit.

Kavanaugh, 41, sought out new investors to help him keep control of his company’s film studio and its other operations. He told the bankruptcy court he would raise $100 million in new equity to power the new Relativity. But, much as in the company’s pre-bankruptcy days, rumored deals came and went and Kavanaugh produced nothing close to the proposed amount.

His lawyer said in the last court hearing that Relativity had downsized its expectations. It would collect just $20 million in new equity, which would be enough, because the company had reduced its overhead drastically.

With all those issues looming, the bulk of the Feb. 17 hearing was dedicated to a wide-ranging, often confusing presentation by Michael Anthony Norton, a screenwriter who brought a $375 million claim against Relativity. Despite a statement on behalf of Relativity that the company could find no evidence of any business connections with Norton, the writer, representing himself and wearing a tie adorned with Looney Tunes animated characters, presented his case for a claim whose direct relation to Relativity seemed largely unclear.

Under the patient guidance of Judge Wiles, Norton made an opening statement that wandered into topics including horse racing terms, the work of Spacey and the fact that when Norton first heard of Relativity’s bankruptcy filing over the summer, he was homeless in Reston, Va.

Parts of his statement seemed to allege similarities between his own work and high-profile films and TV shows including Relativity’s “The Lazarus Effect” (as well as “Veep” and “Blackhat,” both unrelated to Relativity). The closest links he seemed able to produce, however, were a list of several registered but unproduced screenplays, a 2002 novel he’d written called “A Line in the Sand” and a behind-the-scenes gig on an HBO project more than 10 years ago.

“I wanted to do an Al Pacino impression,” Norton said at one point from the attorney’s podium, apparently thinking better of it. When it came time to hear Norton’s witness testimony, Wiles cracked, “I’m not going to make you imitate Woody Allen in the ‘Bananas’ movie and make you interrogate yourself.”

At the witness stand, Norton presented evidence to the court that seemed to include an analysis of Relativity’s business model and its plan for restructuring. His claim against Relativity also incorporated a proposal that Norton be involved in the bankruptcy proceedings moving forward. “Part of your request was to take over the proceedings,” Wiles said. “I have no authority under the bankruptcy code to give you that.”

Norton’s claim seemed fueled not only by his perceived remoteness from the entertainment industry — “A zero sum game blocks me out from the industry. That I don’t appreciate,” he said at one point — but a belief that, as a screenwriter with a masters degree in public administration, he could help Relativity and the industry overall make “more brave and profitable movies and television.”

Wiles opted to defer an immediate decision on a motion from Craig Wolfe, an attorney for Relativity, to disallow Norton’s claim. “I’m going to rule in the next few days,” Wiles said.