Jim French Studios, operated by former COLT owner Jim French, says it hasn't been paid the bulk of a multimillion-dollar promissory note related to the sale of the company seven years ago and is attempting to take over the company as it controls the voting power of the unsecured class of creditors.
French attorneys allege in a motion made late last week that COLT's current Chapter 11 filing is faulty because the company cannot "effectively reorganize."
"No useful purpose will be served by maintaining the case in Chapter 11," French attorneys said in the motion. "As the court has already concluded, the confirmation of a Chapter 11 plan by the debtor is not practical or feasible, and there is no reasonable likelihood of rehabilitation."
French attorneys say that COLT is operating at at "continuing loss," particularly in light that the company owes more than $600,000 in unpaid taxes and that it is in the red by about $1 million.
They also say that current COLT operators John Rutherford and Thomas Settle attempted to use cash collateral to pay expenses without the court's permission.
In mid August, the U.S. Bankruptcy Court in Santa Rosa, Calif., in a contested evidentiary hearing, issued various interim orders restricting direct payments to Settle and Rutherford.
French attorneys in the motion say that Rutherford and Settle were restricted on the use of cash collateral after the court cut "their ability to pay their personal rent of $5,450 per month on the wine country mansion in which they reside."
In addition, French attorneys noted that COLT still hasn't allowed Jim French Studios to search business records at two COLT Bay Area premises, one in Sonoma, Calif., and the other in Boyes Hot Springs, Calif.
Jim French Studios was given the green light to search the records by U.S. Judge Alan Jarosolvsky, who will decide on the latest motion to convert COLT's bankruptcy case to Chapter 7 on Oct. 8.
Last month, French said that he was working with his attorneys to take control of COLT's assets. His comments were made after an initial ruling by Jarosolvsky.
In the statement to XBIZ, French said, “I am very pleased with a decision turning over the COLT brand and assets back into my control. I’ve spent the past several years fighting to get what I was rightfully owed, and in the end I have prevailed."
In the Chapter 11 filing, COLT’s parent, Prowest Media Corp., included assets of $105,000 and liabilities of $2.9 million.
Its largest creditor is Jim French Studios at $1.49 million, although the " validity of security interest is disputed," according to the filing.
Other creditors include Paladin Video Inc. at $282,000, Internap LLC at $30,000, Stan Loeb at $130,000 and the Internal Revenue Service at $632,000.
COLT noted that it had revenue from operations of $2.2 million in 2008, $1.6 million in 2009 and $433,000 in 2010 through June.
One potential asset COLT claimed is a pending matter against French for copyright and trademark infringement worth $2.5 million.
Attorneys for Jim French Studios and COLT weren't immediately available for comment at post time.