Livent Files Chap 11 Reorganization; Drabinsky & Gottlieb Fired; Ragtime Tour Shuts Down

News   Livent Files Chap 11 Reorganization; Drabinsky & Gottlieb Fired; Ragtime Tour Shuts Down
 
Ending days of speculation about the possibility of filing for bankruptcy protection, Livent Inc. and its U.S. subsidiaries filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code Nov. 18.

Ending days of speculation about the possibility of filing for bankruptcy protection, Livent Inc. and its U.S. subsidiaries filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code Nov. 18.

The filing was made in the U.S. Bankruptcy Court for the Southern District on New York. The company said in a late-day Nov. 18 statement that it is considering the same kind of protective action in Canada.

The filing allows Livent, producer of such musicals as Ragtime and Fosse, the chance to keep creditors at bay while pursuing financial restructuring in the wake of recently discovered "accounting irregularities" and "inapproriate business practices" by suspended founder and vice chairman Garth Drabinsky and suspended executive vice president Myron Gottlieb. Also on Nov. 18, Livent board members voted to terminate the already-suspended pair effective immediately. The board also authorized a filing in Ontario Court of a $225 million (CDN) civil damage action against Drabinsky, Gottlieb and a company owned by Gottlieb, alleging "fraud, conversion and unjust enrichment," according to a Livent statement.

The company also released its restated financial statements for 1996, 1997 and the first quarter (ending March 31) of 1998. The restated results (addressing previous statements from the Drabinsky regime) reduce net income for these periods "in an aggregate amount of $85.1 million (CDN) or $61.7 million (US)." For the second quarter 1998 (ending June 30, 1998), Livent reported a net loss of $45.8 million (CDN) or $31.7 million (U.S.).

Before stock exchange trading was halted in August, Livent was the world's only public company devoted solely to commercial theatrical producing. On Nov. 18 the company outlined the "pervasive, systemic acounting irregularities" as such:

*Transactions improperly recorded as revenue.

*Operating costs improperly capitalized to fixed assets.

*Improper recording of costs.

*Improper recording of preproduction costs.

*Improperly accelerated recognition of revenue.

It was not immediately clear what effect the bankruptcy filing would have on productions of Fosse, a new revue musical opening on Broadway in January, or how it would impact other Livent stagings around the world. However, on Nov. 17, the eve of the bankruptcy filing, the national touring cast of the musical Ragtime, in Minneapolis, was told the tour would be suspended after its final Minneapolis performance Nov. 21. It was slated to play Seattle Dec. 2-Jan. 3 and Boston Jan. 20-March 28. Livent had not confirmed the Ragtime tour shut down Nov. 18, but independent sources confirmed the shuttering (see separate Playbill On-Line story.)

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According to various sources, Livent's creditors include the Bank of Montreal, Fidelity Investments Canada Ltd., and the Canadian Imperial Bank of Commerce.

Other sources have Livent's heads Roy Furman and Michael Ovitz looking for a buyer for the company. A sale seems unlikely, however, in light of Livent's reputation on Wall Street. On Nov. 17, according to Variety, the credit agency Standard and Poor downgraded the rating of the company from triple C. The agency said the move "reflects concerns that Livent's capacity to service its outstanding obligations has been further eroded." It also advised that "A bankruptcy filing may become an appropriate option for the company."

Livent was to have released its restated earnings for the past few years by Nov. 13 but has delayed the release until the end of November. The company stated it needed extra time to process all the necessary information. However, a bankruptcy filing may prevent those figures from ever reaching the light of day, according to the National Post.

Livent's troubles began in August, when it was revealed that accounting irregularities has occurred during the reign of now-ousted Livent founder Garth Drabinsky. Since then, the accounting firm of KPMG/Peat Marwick began pouring over Livent's books.

Meanwhile, the New York Post reported that Drabinsky is seeking a $6 million severance package from Livent. Livent spokesperson Jim Badenhausen would not comment on that matter.

On Oct. 22, an Ontario court struck down one of Drabinsky's legal challenges to KPMG's investigation of the theatre production company's books. On Sept. 16, Drabinsky filed a law suit attacking KPMG, then in the midst of inspecting Livent's books for financial irregularities practiced under Drabinsky's tenure. The impresario also requested that an injunction be placed on KPMG's findings. Livent received KPMG's final report on Oct. 22 after the court approved its delivery.

"This report is what the company has been seeking all along," said Livent officials in a statement, "an objective account of the facts." Drabinsky's suit against KPMG is still pending.

Drabinsky claimed KPMG holds a conflict of interest in the matter, because the firm has been the impresario's personal accountant for 20 years and was also Livent's new management team enlisted to inspect the company's books earlier this year.

Drabinsky, along with Livent co-founder Myron Gottlieb, was suspended on Aug. 10 by the company he helped create. Livent, which was taken over last spring by a new management group headed by Roy Furman and Mike Ovitz, cited accounting regularities totaling in the millions. Furman subsequently named Roundabout artistic director Todd Haimes to take Drabinsky's place.

Livent recently withdraw its claim on 42nd Street's Times Square Theatre. On Aug. 5, Livent signed an option of the playhouse -- the last theatre on the block between Seventh and Eighth avenues to be claimed. The company has since rethought the move. "We determined that our proposal did not deliver sufficient returns for the company," said Furman at the time.

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