By Dietrich Knauth
July 2 (Reuters) - Chicken Soup for the Soul Entertainment's former chief executive declined to testify about his company's failure to pay employees before filing for bankruptcy, saying he was concerned about potential criminal liability, his attorneys said at a Tuesday court hearing.
The company, which owns DVD rental service Redbox and online streaming services including Crackle, filed for bankruptcy in Delaware on Friday after losing $636 million in 2023.
The company's lenders, led by private investment firm HPS Investment Partners, accused ex-CEO William Rouhana of improperly firing the company's board, failing to make payroll for the company's 1,000 employees, and causing employees to lose access to their healthcare benefits.
Rouhana's attorney, Morgan Patterson, said Rouhana denied doing anything improper, but would not testify at Tuesday's hearing in Wilmington, citing the serious civil and potential criminal implications of HPS' allegations.
The dispute delayed a normally routine request to borrow additional funds and continue normal operations like paying employees during the initial stage of the bankruptcy case.
After a round of last-minute negotiations on Tuesday, HPS agreed to provide an $8 million loan to fund CSSE's immediate payroll needs while negotiations continue over longer-term funding for the company.
HPS, which is owed $500 million, had asked U.S. Bankruptcy Judge Thomas Horan, who is presiding over CSSE's bankruptcy case, to reconstitute the company's board of directors or place a bankruptcy trustee in charge of the company. HPS backed off its immediate demands after CSSE agreed to put a new board in place and hire a new CEO.
Richard Pachulski, an attorney representing ousted CSSE board members, supported the call for a new board of directors, saying that Rouhana should not be allowed to "puppeteer" the company in its bankruptcy.
CSSE's newly appointed CEO, Bart Schwartz, said that he is not a puppet and that Rouhana was no longer calling the shots for the company. To resolve disputes over his appointment, Schwartz agreed to step down as CEO and join the company's new board of directors while a new CEO is hired.
The case is In re: Chicken Soup for the Soul Entertainment, U.S. Bankruptcy Court for the District of Delaware, No. 24-11442.
For Chicken Soup for the Soul Entertainment: Michael Cooley of Reed Smith
For HPS Investment: Dennis Dunne of Milbank
For DGA, SAG-AFTRA and WGA: Susan Kaufman of the Law Office of Susan E. Kaufman
Read more:
Redbox owner Chicken Soup for the Soul crashes into bankruptcy
(Reporting by Dietrich Knauth)
((Dietrich.Knauth@thomsonreuters.com;))
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