Intellectual Property Law

Creditors Given Break in Midway Games Bankruptcy

By Chris Bennett, Tudor Carsten, Michael R. Coburn, Sarah Dale-Harris, Pablo Guzman, Danielle (Dani) Lemon, Chris Metcalfe and David Spratley

On April 9, 2009 the Judge overseeing the Chapter 11 Bankruptcy of Midway Games ruled that creditors of the video game publisher have permission to investigate and pursue litigation against the company's owner, Mark Thomas in relation to the transaction that led Thomas to own a controlling stake in Midway Games. The permission gives creditors the right to investigate anyone else involved in the transaction, including the former majority stakeholder Sumner Redstone (majority owner of National Amusements Inc.) and Midway's former board of directors. At the same time, the Judge made another ruling that made unsecured creditors less enthusiastic - Midway is permitted continued access to the company's cash reserves. A statement filed in court by Thomas's holding company, stated that Midway could depleted all its cash by the end of this June, although the company's spokesperson has said publicly that they have enough cash to last until August and hopefully beyond.

It is reported that creditors are very suspicious of Thomas, particularly the manner in which he became the majority stakeholder of Midway. Little is known about Thomas, apart from the fact that he is a lawyer with no personal debt and assets worth $10 million. He purchased Midway for an extremely low price, less than a week after he was initially approached with the offer by National Amusements Inc. In November 2008, Thomas paid $100,000 for Redstone's majority stakeholder position, however four days earlier he had offered $1 million. Once the transaction was completed, Thomas had also acquired $70 million in debt, owed to Redstone's National Amusements Inc. $30 million of the debt is secured, making Thomas the first ranking creditor in the bankruptcy. Midway had been experiencing financial difficulties for several years. At the request of Shari Redstone, Sumner Redstone's daughter and chair of Midway's board, National Amusements Inc. lent the video game publishers over $90 million. Both Sumner and Shari claim to have no connection to Thomas.

Rumours abound that Warner Bros., Ubisoft and one other party may be interested in purchasing Midway.

Coverage at Gamasutra and Chicago Tribune

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Full post as published by Video Game Law Blog on April 17, 2009 (boomark / email).