On Monday, New York Attorney General Eric Schneiderman wrote an open letter urging anyone who might bid on the Weinstein Co., the now-bankrupt studio founded by Harvey Weinstein, to include money to compensate the Hollywood mogul’s accusers. On Tuesday, a proposal surfaced that would do just that, from Broadway producer Howard Kagan.
But by Tuesday afternoon, the Weinstein Co. had rejected that proposal and announced that its preferred buyer, a Texas private-equity company with no experience in the entertainment industry, was the only entity it would allow to bid for its valuable film library and other assets.
Which means the 80-plus women (and at least one man) who say Weinstein assaulted or abused them are likely to find that there’s little or no money left on the company’s books to compensate them by the time the bankruptcy process is finished. Rapid bankruptcy sales can be a taxpayer-supported path for companies to arrange insider sales while ditching corporate responsibilities — to workers, to the environment and, as in the Weinstein case, to alleged victims of corporate misbehavior and sexual abuse. They also could make it harder for law enforcement to determine who facilitated Weinstein’s predations.
Until now, the Weinstein Co. bankruptcy looked fair. In March, it publicly released employees who say they were victims of or witnesses to Weinstein’s actions from nondisclosure agreements they’d been pressured to sign. And it gave two of the women who accused him of wrongdoing a seat at the table for the bankruptcy negotiations. At the time, Bob Weinstein, Harvey’s brother and the studio’s co-founder, said the company was pleased to have a plan for “pursuing justice for any victims.”
But in bankruptcy, as in the movies, appearances can be misleading.
The company is using a playbook that has become routine in Chapter 11: a 363 sale. It’s named for a brief section of U.S. code that allows companies to sell some of their property during a bankruptcy. It was originally meant to help filers who had to sell some of their holdings quickly, before they lost their value — which would shortchange creditors. For example, a failed brewery whose vats of beer needed to be sold before they went bad might be able to unload them.
Congress didn’t intend for this code to cover the sale of entire corporations, as the legislative history shows. But in the late 1980s, companies began to argue that the language of Section 363 didn’t rule out a comprehensive sale in an emergency. And judges began going along. Over time, that became standard practice, and what counts as “an emergency” expanded. Few question the legality or fairness of these sales anymore — especially since the Obama administration used them in the bailouts of GM and Chrysler to keep the auto giants in business.
A successful 363 sale would mean there was no longer a Weinstein Co. to sue. The claims against Bob and Harvey Weinstein as individuals would survive, but there would be far less to recoup: The two men themselves don’t own the valuable assets that could fund compensation for victims.
The company’s partners in court are some of its traditional lenders, who have stayed in charge during the bankruptcy. That’s important, because the company and the lenders control their access to the records that reveal who was complicit in Weinstein’s crimes. When insiders run a bankruptcy, it is a terrific conflict of interest — and it has become standard practice in these fast sales.
Elizabeth Fegan, an attorney representing some of the accusers, said in a statement Tuesday, “We’re here to show them the assault survivors will not go away quietly.”
But there is nothing in bankruptcy law that requires that they get justice. A fast 363 asset sale is the smartest tactical move the company and its board could make.
Because once a sale goes through, it’s better than money in the bank. It’s final and unappealable, and it’s backed by the U.S. Bankruptcy Code and the supremacy clause of the Constitution. Even in Hollywood, you can’t beat that for a deal.
Libby Lewis is a former reporter for NPR and CNN.