Bankruptcy Is Bad News for Weinstein Victims

The Weinstein Co. bankruptcy is bad news for victims of Harvey Weinstein’s sexual harassment, who will likely receive little or nothing in compensation from the bankruptcy estate.

The company declared $500 million in debts in its filing on Monday, not counting potential claims arising from Weinstein’s sexual misconduct. Lantern Capital made a $424.5 million bid, including $114.5 million in assumed debt. Another $310 million in cash would go to the estate for the purpose of paying off remaining creditors. Secured creditors would get paid first, along with bankruptcy professionals.

“That leaves our clients with nothing,” said Cris Armenta, one of the plaintiffs’ attorneys in a class action suit against the company.

Harassment victims would be grouped among other unsecured creditors, including vendors, law firms, studios and David O. Russell’s production company, which would be the last to get paid.

“Chances are this is the worst possible outcome for the victims,” said Ted Gavin, managing director of Gavin/Solmonese, a consulting firm that specializes in restructuring.

Armenta said her firm would take an active role in the bankruptcy and seek to ensure that the assets are sold for their maximum value, leaving the most on the table for her clients. She added it was ironic that the company released employees from their non-disclosure agreements — thereby potentially aiding plaintiffs’ cases — at the same moment it declared it essentially had no money to pay any judgments.

“I think it was a PR move,” she said.

Under the terms of the stalking horse bid, Lantern would assume ownership of the Weinstein Co. without taking on any of the liabilities from sexual harassment lawsuits. The Weinstein Co. does have $30 million in employment practices insurance coverage, which would still potentially be available. The plaintiffs can also go after Harvey Weinstein individually, as well as other directors of the company including his brother Bob.

In bankruptcy court in Delaware on Tuesday, Weinstein Co. attorney Paul Zumbro emphasized that the filing was not an effort to evade the harassment claims.

“We are not here to protect Harvey Weinstein or to deprive anyone of a claim against Harvey Weinstein,” Zumbro said. “The Weinstein Co. has filed for bankruptcy relief, but that in no way affects anyone’s ability to pursue civil or criminal claims against Harvey Weinstein in his individual capacity.”

Investor Ron Burkle had earlier offered to buy the company outside of bankruptcy and establish a victims’ compensation fund. New York Attorney General Eric Schneiderman intervened in the sale, and pushed to increase the fund to some $90 million. But when that deal fell through two weeks ago, so did the fund.

It is still possible that Schneiderman’s office could press Lantern to make a similar commitment, using an ongoing discrimination lawsuit as leverage to extract that concession.

“I wouldn’t be surprised if you saw some sort of compromise where some proceeds from the sale might be set aside for victims,” said Gerard Catalanello, a bankruptcy attorney at Alston & Bird. “There would have to be something in it for everyone.”

Lantern would have no legal obligation to offer anything to victims, but it might see a practical interest in buying some goodwill in the entertainment community and in the public eye.

Ricardo Lopez contributed to this story.

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