Q&A: A Weinstein Co. bankruptcy could complicate lawsuits

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The Weinstein Co. had been trying to stave off bankruptcy since the sexual misconduct scandal exploded in October, prompting the company to fire Harvey Weinstein as CEO.

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The movie studio had been on the brink of $500 million deal to sell its assets to an investor group outside of bankruptcy when New York State Attorney General Eric Schneiderman filed a lawsuit two weeks ago that halted the proceedings.

The buyers’ group, led by former U.S. Small Business Administrator Maria Contreras-Sweet, had been in talks with Schneiderman’s office in the hopes of reviving the sale, but the board of the Weinstein Co. pulled the plug Sunday.

In a letter to the buyers, the company said the group had failed to come through with interim funding necessary to keep the company running pending finalization of the sale. The letter also said that the buyers, following a Feb. 21 meeting with the attorney general’s office, imposed other conditions that would delay a closing of the sale for many months, something the company could not afford. The company said an orderly bankruptcy process has become the only viable option.

In a statement Monday, Contreras-Sweet said she was surprised by the Weinstein Co.’s decision and that it has been her “understanding that we were close to signing the transaction documents in a couple of days.”

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WHO IS SUING THE WEINSTEIN CO.?

Civil lawsuits have been piling up accusing the company of aiding and abetting Weinstein’s misconduct. Among those is a proposed class-action suit filed in New York alleging that Weinstein’s former film companies operated like an organized crime group in relation to the former CEO’s sexual harassment and assaults. The lawsuit was filed by six women but could potentially involve hundreds more. In another lawsuit, a former personal assistant for Weinstein details several abuse allegations, including being forced to take dictation from him while he was naked.

Schneiderman’s lawsuit was filed on behalf of the Weinstein Co.’s employees. The attorney general accused Weinstein of demanding sexual favours from some employees and forcing others to facilitate his sexual conquests. The lawsuit said the company knew of his behaviour and failed to protect its employees from it.

The Weinstein Co. has said it was unaware of Weinstein’s alleged conduct and that he was solely responsible for his actions. Harvey Weinstein has denied any allegations of assault.

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WHAT WILL HAPPEN TO THE LAWSUITS NOW?

A chapter 11 bankruptcy filing would halt any civil lawsuits that have been filed against the Weinstein Co.

It would also give the company’s secured creditors priority over the women suing the company, which has at least $225 million in debt that would have been inherited by the Contreras-Sweet group.

Some Weinstein accusers had fiercely advocated for selling the studio outside bankruptcy, seeing it as their only chance at getting financial compensation from the company. Lawyer Gloria Allred, who represents some of the accusers and publicly backed the Contreras-Sweet proposal, said she was concerned no money would be left for plaintiffs in the event of a bankruptcy.

The Contreras-Sweet group would have set up a victims’ compensation fund beyond the $30 million the company’s insurance provides. After a meeting with Schneiderman’s office last week, the group committed to dedicating up to $90 million for the fund, which would have been overseen by an independent administrator. Now, if the bankruptcy filing proceeds, the accusers will be left with the insurance money and whatever is left after creditors are paid.

The Chapter 11 filing, however, would not stop the lawsuit filed by Schneiderman’s office. It also would not prevent the civil lawsuits from going forward against other named individuals and entities.

Both Weinstein brothers — Harvey and Bob — are named in the class action suit and in the attorney general’s lawsuit.

The lawsuit filed by Weinstein’s former assistant, Sandeep Rehal, also names the Weinstein brothers, along with the company’s former head of human resources.

“A bankruptcy filing, should it occur, has no actual impact on the claims against the other individual defendants,” said Genie Harrison, an attorney for Rehal. “It complicates the process but I have confidence that the matter is going to unwind itself appropriately.”

Lawyers for the plaintiffs involved in the class action suit have argued that a bankruptcy filing would bring transparency by opening the company’s finances to scrutiny.

John Woodman, a corporate law attorney at Sodoma Law who is not involved in the cases against the Weinstein Co., said bankruptcy proceedings would give the plaintiffs the right to question the company about its assets. It also could allow the plaintiffs to weigh in on any future sale, though that could be complicated by the fact their claims against the company are disputed.

Alexandra Olson, The Associated Press