Employees of Redbox parent Chicken Soup for the Soul Entertainment are on track to resume getting their regular pay and benefits under a loan agreement given initial approval by a bankruptcy court judge.
The roughly 1,000 workers at the company have gone without pay for at least two weeks, in some cases longer. Chicken Soup filed for Chapter 11 bankruptcy protection last weekend after months of financial struggles.
Delaware U.S. Bankruptcy Court Judge Thomas M. Horan on Thursday issued an order signing off on an $8 million “debtor in possession” loan following a preliminary hearing Wednesday. The order is subject to a final hearing in the coming days. Of the total loan amount, up to $3.5 million will go toward past due payroll and payroll due today (July 5), up to $2.85 million will be earmarked for payroll deductions and another $1.65 million for payments to Anthem for health care premiums.
As Deadline was first to report, employee medical benefits had been suspended since mid-May.
In his order, Horan wrote that approval of the DIP loan is “necessary to avoid immediate and irreparable harm to the debtors and their estates pending the final hearing.” The measure is also “essential for the continued operation of the debtors’ businesses and the preservation of the value of the debtors’ assets,” he added.
CSSE, which went public in 2017 as a media-focused spinoff of its namesake publisher of self-help books, acquired streaming service Crackle and film distributors Screen Media and 1091 Pictures en route to its ill-fated takeover of video kiosk operator Redbox. The company disclosed $970 million in debt in its Chapter 11 filing, with unsecured creditors including Universal Studios, Sony Pictures, Lionsgate, Walmart, Vizio, Warner Bros and Paramount Pictures.
As the DIP loan process was unfolding in the Delaware courtroom, a separate aspect of the Chapter 11 case also flashed into view. HPS Investment Partners, which has been one of the company’s backers and arranged for financing for the DIP loan, raised objections to a changing of the management guard announced earlier in the week. Bart Schwartz, a former federal prosecutor who runs a New York-based consulting firm, was introduced as the company’s new CEO and he and two others were installed on the company’s board of directors.
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The turnover was shepherded by Bill Rouhana, the company’s longtime former CEO and chairman, who last month had ousted the entire board in a dramatic move. HPS said creditors had not been advised in advance of the planned leadership changes. Given the missed payroll and suspended benefits on Rouhana’s watch, HPS argued, the court should allow the directors who had been fired by the exec to rejoin the board.
In response, Rouhana’s attorneys said in a filing that HPS “tainted the first day motions proceedings with irresponsibly false and scandalous allegations concerning Mr. Rouhana’s former leadership.” The ex-CEO “believes the court and the parties’ current focus must be on the employees who have already rendered services to the debtors being immediately paid their wages and their health insurance is reinstated.”
CSSE’s stock, meanwhile, stands at 10.55 cents a share, having fallen nearly in half since the bankruptcy filing, but it has not traded since Tuesday. Nasdaq had issued multiple warnings of a potential delisting due to the stock not trading above $1 for an extended period.
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