Blockbuster's unsecured creditors are calling for the liquidation of the movie rental company in Chapter 7 bankruptcy after the company struck a deal with senior creditors which purportedly disenfranchises landlords and vendors.
The current sale proposal is "designed for the exclusive benefit" of Blockbuster potential buyers and would result in "devastation" for unsecured creditors owed some $486 million, the creditors committee said in court papers.
For example, the deal would allow the buyers to dictate who receives the sale proceeds. That would allow Blockbuster to make a $125 million payment to its bankruptcy lenders, a group that includes the would-be purchasers, while leaving little for vendors and landlords that provided goods and services to the company since its Chapter 11 bankruptcy filing.
The proposed bankruptcy sale would also place the proceeds of some lawsuits with Blockbuster's foreign subsidiaries effectively out of the reach of the bankruptcy court and unsecured creditors. The unsecured creditors in the bankruptcy case want this and other parts of the sale removed before they will agree to the sale. The deal, which would transfer ownership of Blockbuster to an investment group for $290 million, could in essence could be ruled unfair and rejected by the bankruptcy court. And if it is true that the deal unfairly leaves unsecured creditors with nothing, or very little compared to what they could get in a Chapter 7 bankruptcy liquidation, the embattled movie rental company could find itself in a fight for its very existence. Already many have questioned the viability of the company, saying that it cannot survive in its current form due to the drastic changes that have taken place in the movie rental industry.
(source: https://www.fis.dowjones.com/WebBlogs.aspx?aid=%20DJFDBR0020110301e731000dy%20&ProductIDFromApplication=&r=wsjblog&s=djfdbr and http://www.dallasnews.com/business/headlines/20110301-walt-disney-objects-to-proposed-blockbuster-auction-after-debt-holder-bid.ece )