New York software developer files for Chapter 11

May 13, 2013 5:57 pm Published by

Kit Digital Inc., a New York-based company that develops software used to manage digital video, has filed for bankruptcy after reaching a negotiated restructuring agreement with a shareholder group. TheChapter 11 petition was filed in late April in the U.S. Bankruptcy Court for the Southern District of New York. The petition lists assets in excess of $10 million and debts of a similar amount.

The company had announced earlier in April its intent to file for bankruptcy with a debt repayment plan that has been approved by three of its largest shareholders. The plan has not yet been posted on the court’s docket. Kit Digital’s most recent financial statements show that the company made $107.3 million in revenue for the six month period ending June 30, 2012. During the same period, losses from operations totaled $110.8 million, including a charge for goodwill impairment in the amount of $55 million. The company’s largest unsecured creditor is the Jones Day law firm, which has a claim of $1.6 million for legal fees and services.

Kit Digital’s situation illustrates how a business that cannot operate profitably due to operating losses and debt may find relief through a Chapter 11 business bankruptcy. After filing a Chapter 11 petition, the company may continue to operate its business as usual while working out a plan to reorganize its debt and pay creditors. Like Kit, many companies are now opting for pre-packaged bankruptcies in which restructuring agreements are negotiated with creditors prior to filing the bankruptcy petition. This allows the bankruptcy process to be completed more quickly and inexpensively in many cases.

While bankruptcy may not be right for all companies, it does offer many companies a viable option to meet their financial challenges. An experienced bankruptcy attorney can help a struggling business weigh the alternatives and determine if it may benefit from a bankruptcy proceeding.

Source: Bloomberg, “Kit Digital Files for Bankruptcy After Shareholder Accord,” Dawn McCarty, April 25, 2013

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