Blockbuster backers exhaled in relief after U.S. Bankruptcy Judge Burton Lifland approved payments to studios designed to insure the supply of movies and games to the embattled movie-rental giant.
Blockbuster can pay $28 million owed to Sony Pictures Home Entertainment Inc., Twentieth Century Fox Home Entertainment LLC and Warner Home Video, U.S. Bankruptcy Judge Burton Lifland in Manhattan said at a court hearing today.
Those studios negotiated trade agreements with Blockbuster in March in which they received security interests in Blockbuster's Canadian assets. Blockbuster can pay other studios that negotiate agreements as much as $12.4 million, under Lifland's order.
Blockbuster's pre-bankruptcy planning included critical agreements such as the one approved by bankruptcy judge Lifland; but it ran the risk that some of the critical agreements would not be approved, thus completely derailing the company's effort to reorganize its debts. One of the benefits of pre-bankruptcy planning in Chapter 11 bankruptcy is that a debtor company can arrange creditor repayment agreements designed to sustain the company before filing bankruptcy making it easier to navigate the bankruptcy process once approved by the bankruptcy court. And in many cases the bankruptcy court will approve pre-bankruptcy agreements granted that they meet certain criteria.
Blockbuster's supply of movies and games is a critical component to its business, that's why the bankruptcy judge approved the pre-bankruptcy agreement and allowed the company to pay the debts of that creditor before other non-critical suppliers. And while it may seem unfair to other suppliers who don't provide critical products or services to the debtor company, it is completely fair in terms of sustaining the viability of the company in Chapter 11 bankruptcy. And since Chapter 11 bankruptcy is designed to help companies survive financial crisis and emerge viable, some creditors will receive priority over others depending on how they help that company survive and thrive during and after bankruptcy.