[Editor’s note: This article updates a breaking news story published earlier today with additional details from the judge’s ruling.]
Stream TV Networks Inc’s bankruptcy judge today dismissed the technology company’s Chapter 11 case, siding with SeeCubic, a vehicle of Stream’s secured convertible noteholder that accused Stream of improperly seeking bankruptcy protection to avoid the consequences of a state court ruling.
Judge Karen Owens of the US Bankruptcy Court for the District of Delaware granted SeeCubic’s motion to dismiss Stream’s Chapter 11 case with an oral ruling delivered during a hearing this afternoon. The dismissal follows a multiday trial on both SeeCubic’s motion and a separate motion to dismiss the Chapter 11 case lodged by the US Trustee’s office overseeing Stream’s case.
SeeCubic has argued since the early stages of Stream’s bankruptcy case that the Chapter 11 filing marked the latest effort of Stream founders Mathu and Raja Rajan to nix a restructuring deal reached in 2020 between the company’s independent directors and secured lenders including a SeeCubic affilate. That restructuring pact, referred to during the trial as the “omnibus agreement,” came after Stream defaulted on some of its secured debt and called for the transfer to the lenders of Stream’s assets.
Among the assets that the omnibus agreement covered were those related to Stream’s flagship Ultra-D technology, which aims to convert two dimensional displays into 3D without the use of glasses. The omnibus agreement later became the focus of litigation in Delaware Chancery Court, where a judge issued a preliminary injunction that prohibited the Rajans from taking a number of actions related to Stream or its assets. Stream then sought Chapter 11 protection soon before the Chancery Court judge was set to convert the preliminary injunction into a permanent one.
Judge Owens said today that, after considering the evidence presented at the trial, she determined that Stream did not seek Chapter 11 protection in good faith or for a legitimate bankruptcy purpose. Instead, she considered the timing of the petition in connection with the status of the Chancery Court litigation as an indication that Stream hoped to use the bankruptcy case to escape the omnibus restructuring agreement, even after the state court had considered the contract and ruled in SeeCubic’s favor.
“I will not permit the bankruptcy process to be used in such a fashion,” the judge said.
While it’s uncommon for Chapter 11 bankruptcy cases to be dismissed based on a finding of bad faith, the dismissal of Stream’s case marks the second such ruling in the past week. On 11 May, a judge in the US Bankruptcy Court for the Northern District of Texas dismissed the National Rifle Association’s (NRA) Chapter 11 case after determining that the gun rights advocate was attempting to use the bankruptcy process to skirt a regulatory action by the New York Attorney General’s office. As discussed by the Debtwirelegal analyst team, the decision in the NRA decision highlights when bankruptcy filings in response to litigation are – and are not – in good faith.
The judge made clear that, while she is dismissing Stream’s Chapter 11 case immediately, she is doing so without prejudice, meaning that Stream could potentially file a subsequent bankruptcy petition.
“I would expect that any future filing would occur after the completion of the Chancery Court litigation,” Judge Owens said.
During the dismissal trial for Stream’s Chapter 11 case, the company and a proposed debtor-in-possession lender, Visual Technology Innovations Inc (VTI), argued that Stream entered Chapter 11 for legitimate reasons in February, at a time when it was in deep financial distress. Since filing the bankruptcy petition, Stream and VTI said, the company has attempted to acquire new technology and line up financing to keep its business afloat. They added that, given those circumstances, Stream deserved to at least attempt a court-supervised reorganization.
On the opposing side were SeeCubic and the US Trustee’s office, as well as Stream’s unsecured creditors committee (UCC). The UCC’s support for dismissing the Chapter 11 case came in part due to a settlement in which SeeCubic offered to pay USD 225,000 of the UCC’s professional fees and provide a USD 2.5m promissory note for the benefit of Stream’s unsecured creditors.
Stream was founded in 2009 as a new media company, aiming to launch technology allowing TV and tablet makers to convert 2D devices into 3D ones without viewing glasses, according to bankruptcy court filings.