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Relativity Not Paying Vendors as Financial Woes Escalate (EXCLUSIVE)

Relativity Media owes vendors close to $1 million in unpaid bills and has defaulted on its overhead, according to company insiders. Lawyers have become involved in the situation, and there are fears that the company may not make payroll. Relativity is in arrears, and companies are now clamoring to get paid, sources said.

The financial turmoil comes a week after “Masterminds,” a heist comedy with Zach Galifianakis and Owen Wilson, collapsed at the box office, earning $12.8 million. Relativity emerged from bankruptcy protection earlier this year, but has had difficulty finding new capital to help it put new films into production and pay down debt.

Europa Corp., the French film studio that Relativity runs a distribution and marketing joint venture with, which is called RED, is trying to untangle its relationship with the studio. Relativity is behind in paying its half of the operating costs. Employees of RED are not impacted by the financial issues at Relativity, according to insiders.

After “Masterminds” flopped, Relativity said it was for sale again, telling media outlets that it was fielding several offers. Companies that are looking at Relativity have all demanded that its founder Ryan Kavanaugh cease to be involved and sell his minority stake, according to insiders. Kavanaugh is a colorful figure, who attracted a great deal of media attention initially for claiming to have developed an algorithm that could enable him to separate the flops from the hits. His reputation was tarnished after Relativity filed for Chapter 11, weighed down by a series of film failures and citing over $1 billion in liabilities.

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