Feud Between Relativity Founder, Consultants Erupts in Bankruptcy Filings

Relativity, which produced the film ‘Immortals,’ filed for bankruptcy in July. PHOTO: RELATIVITY MEDIA/EVERETT COLLECTION

The brewing feud between Relativity Media founder Ryan Kavanaugh and the consultants brought in to turn around the Hollywood film studio has erupted in public view.

In a rare public airing of grievances, new bankruptcy court filings and recent correspondence paint a picture of a difficult relationship between the leader of a Hollywood studio on the brink of bankruptcy and the turnaround consultants brought in to right the ship.

Brian Kushner, the turnaround consultant hired at the behest of Relativity’s lenders, filed papers in a Manhattan bankruptcy court describing a contentious relationship with Mr. Kavanaugh before and after Relativity filed for bankruptcy on July 30, as well as through a subsequent sale process.

“Through my personal observation, Mr. Kavanaugh actively delayed the efforts of the debtors’ employees or advisers to adequately prepare for bankruptcy,” Mr. Kushner said.

Mr. Kushner’s public filing follows a private letter Mr. Kavanaugh’s lawyer sent to the lawyer for Mr. Kushner’s firm, FTI Consulting (FCN), outlining the “multiple missteps” Mr. Kushner and FTI allegedly made with regard to Relativity’s film business.

The letter, which The Wall Street Journal has viewed, requests mediation with the turnaround firm in a bid to avoid a court battle and instead achieve “a consensual resolution of the parties’ disputes.”

The dispute, over the work FTI performed and the alleged actions of Mr. Kavanaugh, comes as Relativity creditors vote on a bankruptcy-exit plan that would see Mr. Kavanaugh and another investor take control of Relativity’s film studio by trading about $175 million of the company’s debt for equity. The company’s television studio was spun off and sold to Relativity’s lenders.

Relativity’s bankruptcy-exit plan is expected to go before a Manhattan bankruptcy judge for approval early next year. In the meantime, FTI said in court papers that Mr. Kavanaugh has terminated its services.

In a letter dated Dec. 8, Mr. Kavanaugh’s lawyer describes alleged issues with FTI’s work for Relativity, including favoring the studio’s television business over its film unit and making key decisions without consulting Relativity’s board, as required.

“FTI ultimately made hiring and firing decisions without consulting the board,” Mr. Kavanaugh’s lawyer wrote. “FTI likewise made salary and bonus decisions without board approval or consultation.”

Mr. Kavanaugh’s lawyer expressed hope for “a consensual resolution of the parties’ disputes” in the letter and asked FTI to consider joining it in mediation. About a week later, however, FTI and Mr. Kushner filed papers in bankruptcy court calling the allegations “baseless and factually inaccurate” and making their own claims about Mr. Kavanaugh. The filings seek payment of about $4.8 million that FTI charged for two months of work.

According to Mr. Kushner, upon his hiring, there was “almost instantaneous animosity” between him and Mr. Kavanaugh over what he says were their “differing” views on Relativity’s financial health. As a result, while Mr. Kushner and his team worked to prepare for bankruptcy, he said Mr. Kavanaugh was working to find new capital for the increasingly cash-poor company, to no avail.

“As my team and I became more integrated into the debtors’ businesses, Mr. Kavanaugh became increasingly unavailable, focusing even more on his attempt to woo new investors, ignoring the immediate liquidity concerns of the debtors,” Mr. Kushner said.

Reached on Friday, a Relativity spokesman said Mr. Kavanaugh “worked tirelessly to strengthen” the company’s financial health.

“FTI made numerous missteps that cost Relativity and its lenders millions of dollars, and this filing represents little more than sour grapes following the firm’s termination by Relativity earlier this year. Kavanaugh continues to work with the board and all advisers to guide the company toward emergence from chapter 11 bankruptcy with a robust slate of content and positioned for long-term success,” the spokesman said.

Mr. Kushner declined comment Friday, citing FTI’s policy not to comment on client matters.

Article from:- http://www.wsj.com




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