Court OKs Auction for Jill Kelly Productions Assets

Matt O'Conner
WOODLAND HILLS, Calif. — At the urging of the Official Committee of Unsecured Creditors of Jill Kelly Productions, a bankruptcy court has authorized the sale of a large portion of JKP’s assets. The auction is scheduled for April 17.

As XBiz reported, JKP recently asked the court to deny a motion that would have allowed Pleasure Productions owners Michael and Frank Koretsy to effectively take over the company through their ownership of XGen LLC, which had earlier purchased a note of debt from Alliance Financial Capital Inc.

Aram Ordubegian, counsel for the Official Committee, told XBiz that because JKP was unable to reorganize and become profitable, its creditors — which represent a wide cross section of the industry — agreed that the best course of action was to put JKP’s assets up for auction.

“The reality is that Chapter 11 is not intended for liquidation; it’s intended for reorganization, and lots of businesses come out of it [successfully],” Ordubegian told XBiz. “Why this company was not able to fix itself post-bankruptcy — especially when its assets are apparently worth so much given the potential for video-on-demand, pay-per-view, cellphone and other distribution — is the question.”

Chief among JKP’s assets are its adult film library and related masters, which Ordubegian said account for “200,000 burned, packaged DVDs ready to go.” The films, along with $200,000-$300,000 in accounts receivables, and JK Distribution, the company’s distribution arm, will go to the highest bidder, as determined by the court.

JKP lists about 85 creditors, with more than $3 million in liabilities, including a $400,000 Internal Revenue Service tax claim, and assets of $1.5 million. Its larger creditors include Nasty Pixx, American Express Co. and AVN Publications Inc., but XGen is the only secured creditor, meaning, in essence, that it will be the first creditor paid with proceeds from the auction.

XGen also has been offered the first opening bid at $700,000. If no one else comes forwards to overbid XGen, the Koretsky’s will take control of JKP’s primary assets. Ordubegian said he believes the assets are worth far more than that amount and he hopes others in the industry recognize the same.

Ordubegian said he has been contacted by many interested parties throughout the bankruptcy process, including several adult companies who see an opportunity to mix the titles into their existing libraries, as well as at least one mainstream company that sees the inventory as a quick way of gaining entry into the adult arena.

“We expect and, as a committee of creditors, hope there will be overbidders. The auction could be fun. Who knows who’ll come out of the wood work,” he said, adding that various parties have estimated the true worth of JKP’s assets to exceed $1.2 million.

No matter how much the assets sell for, however, Ordubegian said it is a longshot that JKP’s creditors will ever see anything near what they are owed. XGen has roughly $500,000 in secured claims that it must be paid before any of the other creditors get a dime.

“The real story here is what happened to this business, one of the rising stars in the adult industry, and how, apparently, pre-bankruptcy, its cash or assets were taken or stolen,” Ordubegian said. “There are various investigations out of New York looking into that.”

A complete list of assets at auction will be made available shortly, Ordubegian said.

“The unsecured creditors get a very small percentage of the distribution on claims,” he said. However, the auction is not the end of legal actions likely to arise of JKP’s Chapter 11 filing. Ordubegian said the door is open to actions against former officers of the company.

“This is like the dot-com cases a few years ago,” Ordubegian said. “When things went bad, the owners and officers started doing not-so-happy things for their personal benefit, but their liquidated assets weren’t worth anything — the assets were typically nothing more than a bunch of ideas and some computer equipment. So, what you saw were lawsuits against the directors and insiders.

“The only way the unsecured creditors get paid is if those future actions bare fruit,” he added.

Ordubegian also said Kelly has been appointed by the court as the temporary "responsible person" or the point person for JKP and may, along with other former officers and directors, have to answer for JKP's past actions.