Judge slaps Sumner Redstone in Midway Games bankruptcy

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Judge slaps Sumner Redstone in Midway Games bankruptcy

Thu Feb 04, 2010 @ 11:05AM PST


By Eriq Gardner

U.S. Bankruptcy Court Judge Kevin Gross has just dismissed claims that Sumner Redstone, as well as other former directors of Midway Games, breached their duty to stakeholders and engaged in fraudulent transfers of Midway's assets.

But Gross wasn't very kind to the Viacom topper, who was Midway's controlling shareholder until he sold his stake in the company for $100,000.

"The decision is not an endorsement of any of the defendants' actions," Gross wrote in his ruling. "The defendants oversaw the ruin of a once highly successful company, only to hide behind the protective skirt of Delaware law, which the court is bound to apply."

In 2008, Midway had some cash-flow problems. A deal was arranged wherein Midway's accounts receivables were sold to National Amusements, the movie theater company controlled by Redstone.

In bankruptcy court, Midway creditors objected to this transaction and others. Gross denied that the loans added to Midway's "deepening insolvency" but has allowed to stand claims that the payments on loans were preferential.

The financial troubles caused Midway's U.S. assets, including the "Mortal Kombat" franchise, to be sold to Warner Bros. last July for $33 million. The fate of Earthrealm is now in new hands.

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The Hollywood Reporter, Esq. blog focuses on how the entertainment and media industries are impacted and influenced by the law. It is edited by Matthew Belloni with contributions from veteran legal reporter Eriq Gardner and others. Before joining The Hollywood Reporter, Belloni was a lawyer at an entertainment litigation firm in Los Angeles. He writes a column for THR devoted to entertainment law. Gardner is a New York-based writer and legal journalist. Send tips or comments to Matthew.Belloni@thr.com

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