Midway committee sues Redstone for loss of tax benefits

The creditors' committee of Midway Games Inc. sued the company's former owner Sumner Redstone and companies he controls, contending his November 2008 sale of the stock of the creator of Mortal Kombat and other video games was a fraudulent transfer, corporate waste and a breach of fiduciary duty.

The committee was authorized to sue Redstone in April when the bankruptcy judge in Delaware gave Midway final approval to use cash. Redstone sold his 87 percent controlling stock interest for $100,000 to Mark Thomas and companies affiliated with Thomas.

Selling control "swiftly generated over $700 million in tax losses for the Redstone defendants," the complaint alleges. The committee contends that the sale also "caused Midway irretrievably to lose the ability to take advantage of its accumulated net operating losses." To read other Bloomberg coverage, click here.

Chicago-based Midway filed under Chapter 11 in February, listing assets of $168 million and debt of $281 million. Including the balance sheets of foreign subsidiaries not in bankruptcy, the asset and liability totals are $178 million and $337 million.

Midway's debt includes $150 million in convertible notes, $29 million on a secured term loan and revolving credit, $40 million on a secured loan facility and $20 million on a subordinated loan. Unsecured claims by suppliers total $96 million, the company said in a court filing.

The case is In re Midway Games Inc., 09-10465, U.S. Bankruptcy Court, District of Delaware (Wilmington).