Trustee says defer Blockbuster lawyers' pay

Reuters News
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Posted: Jun 20, 2011 12:06 PM
Trustee says defer Blockbuster lawyers' pay

WILMINGTON, Delaware (Reuters) - Bankrupt video store chain Blockbuster Inc has so little remaining value that its lawyers and advisers should not be paid their outstanding fees and expenses at this time, the U.S. trustee overseeing the bankruptcy said in a court filing.

The trustee, Tracy Hope Davis, also questioned whether the law firm Weil, Gotshal & Manges LLP could be compensated nearly $70,000 for work related to the company's plan of reorganization, which ultimately collapsed.

Weil did not immediately return a call seeking comment.

Blockbuster filed for bankruptcy last year, initially with a plan to reorganize as a scaled-back movie rental chain owned by its main secured creditors: billionaire investor Carl Icahn and several hedge funds.

However, after poor year-end holiday sales, the chain was put up for sale. It was purchased in an auction by Dish Network Corp for $320 million, less than half the total owed to secured creditors.

The trustee, a Department of Justice official, said the lawyers, financial advisers and auditors had already received 80 percent of their requested fees. She said the balance should be deferred at this time because paying it could prevent other so-called administrative claims from being paid.

"Debtors are currently in the process of determining the extent to which they are administratively insolvent," the trustee said in the filing, made on Friday.

The trustee's request "is not uncommon and certainly more common in cases as administratively insolvent as Blockbuster is," said Scott Stuart, a partner Donlin Recano, which manages bankruptcy claims.

Stuart, formerly with the U.S. Trustee's Office, said the lawyers and advisers would likely discuss the fee applications with the trustee and might take voluntary reductions.

It is very rare that lawyers and advisers are not paid in large bankruptcies.

"Normally, when you go into these things you have sufficient cash to pay the professionals who are leading the restructuring," said Stephen French of Legalbill, a company that manages legal spending.

The case is in re: Blockbuster Inc, U.S. Bankruptcy Court, Southern District of New York, No 10-14997.

(Reporting by Tom Hals; editing by John Wallace)