Redbox Owner Chicken Soup For The Soul To Liquidate; Fate Of Workforce Unclear

Redbox parent Chicken Soup for the Soul Entertainment has shifted its bankruptcy filing from Chapter 11 to Chapter 7, meaning it will liquidate its business.

The company, sagging under the weight of nearly $1 billion in debt and a tall stack of unpaid bills, filed for bankruptcy protection on June 29. During bankruptcy court proceedings, it secured a “debtor in possession” loan of $8 million designed to help it resume paying workers after nearly a month of no paychecks and also restore their medical benefits. Deadline had earlier reported on the delays in pay and health care.

On Wednesday, HPS Investment Partners, which has been one of the company’s backers and arranged for financing for the DIP loan, said it could not extend any additional financial resources. Duly notified, CSSE made a motion to shift the Chapter 11 case to Chapter 7, and U.S. Bankruptcy Judge Thomas M. Horan gave his approval.

Richard Pachulski, a lawyer for Chicken Soup, told Horan in a hearing that the situation was “heartbreaking” and that a team of lawyers and execs had worked “day and night” to find a solution. At one point, they had hoped to raise funds by selling certain assets and be able to keep a core group of employees working. Ultimately, though, the conclusion was reached that employees would need to be let go and all 24,000 Redbox kiosks would shut down. “It’s not a position that any of us want to be in,” Pachulski said, according to an audio recording released by the court.

The details for employees in terms of any eligibility for back pay and severance have not been finalized. In an email to employees obtained by Deadline, former board members Rob Warshauer and John Young explained that a Chapter 7 bankruptcy trustee would be appointed and then determine the next steps. “The trustee may terminate all employees but that will be a decision that is up to the trustee,” they wrote.

A town hall meeting with employees has been scheduled for Thursday.

As the bankruptcy case unfolds, former CEO Bill Rouhana has obtained his own legal counsel as the court sorts through a number of claims about the company’s financial operations.

Horan said it was “sickening” to see that employees who had paid health care premiums had been denied coverage since mid-May because the company had failed to pay Anthem, its provider.

“We know that many of you have worked very hard (as we have along with the professionals) to provide a path forward that would allow for some continued operations, but as the court was informed, we cannot, in good conscience, continue down this path with no source of funding,” Warshauer and Young wrote. Their email highlighted a portion of Horan’s order affirming the Chapter 7 shift. “In no circumstance shall this order be deemed to require any employee of the debtors to provide any services without assurance of payment,” the order emphasized.

Chicken Soup for the Soul Entertainment, which spun off from the namesake self-help book publisher in 2017, grew via a series of acquisitions, buying properties like the streaming service Crackle and film distributors Screen Media and 1091 Pictures. Its biggest M&A deal, the $375 million acquisition of Redbox in 2022, proved its downfall for myriad financial and strategic reasons.

“It’s not right what they’re doing to the employees,” one worker told Deadline. “We’re all getting screwed over.”

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