Midway Games creditors win court's OK to settle shareholder suit
Midway Games Inc.'s main creditor committee won bankruptcy court approval to settle a lawsuit with a shareholder over his purchase of an 87 percent equity interest in the video-game maker from Sumner Redstone.
U.S. Bankruptcy Judge Kevin Gross in Wilmington, Delaware, approved the agreement between the creditors and shareholder Mark E. Thomas at a court hearing today, saying "the settlement meets the requisite tests." The committee and Thomas agreed last month to drop Thomas and his companies from a lawsuit it filed in May. The complaint will continue against Redstone, his affiliated companies, and Midway's Board of Directors.
The committee agreed to allow an affiliate of Thomas to collect as much as $5 million ahead of other creditors whose claims aren't backed by collateral. Thomas and his affiliates had been seeking as much as $70 million.
The settlement allows Midway's estate to avoid paying "substantial additional legal fees," the committee said in court documents filed June 4.
In November, Redstone, then the controlling shareholder, sold his stake in the company and a $30 million secured loan and a $40 million unsecured loan to Thomas for $100,000, court papers show.
Midway filed for Chapter 11 bankruptcy in February, saying it was hurt by the transaction because it lost the ability to take advantage of accumulated net operating losses and other tax assets. The company listed assets of $167.5 million and debt of $281 million as of Sept. 30, according to court documents.
The creditor committee accused Thomas and Redstone, the chairman of CBS Corp. and Viacom Inc., and his National Amusements Inc. of fraudulent transfer and breach of fiduciary duty for selling the stock, according to court papers.
Under the terms of the accord, Thomas and his affiliates, in exchange for the $5 million secured claim, will release the company of all other claims. The settlement represents a 93 percent reduction in Thomas's claims, court papers show.
According to the settlement, Acquisition Holdings Subsidiary I LLC, an affiliate of Thomas, will collect the $5 million from the proceeds of the sale of Midway, maker of the "Mortal Kombat" game. The payment would be reduced by any money Midway paid to Thomas after the company filed bankruptcy, according to court records.
The committee said Thomas may have been paid as much as $287,000 after Midway filed its Chapter 11 petition on Feb. 12.
The case is In re Midway Games Inc., 09-10465, U.S. Bankruptcy Court, District of Delaware (Wilmington).