Midway creditors sue old, new owners

Bankruptcy proceedings get uglier with allegations of improper conduct leveled at Sumner Redstone, Mark Thomas over $100,000 sale of controlling interest in publisher.

Just days after Midway Games filed for bankruptcy, a number of its creditors filed a formal objection to the November 2008 sale of controlling interest in the company for the bargain-basement sum of $100,000. That deal saw media mogul (and executive chairman of GameSpot parent company CBS) Sumner Redstone sell his 87 percent stake in the Mortal Kombat publisher--valued at $30 million--to Mark Thomas, along with millions in secured loans that Sumner had made to the publisher through his National Amusements Inc. holding company.

This screen from The Wheelman provides an apt metaphor for the relationship between Midway's owners and its creditors.

Now the creditors have gone beyond their initial objection and outright sued Redstone, Thomas, and the Midway board of directors. At the heart of the dispute is the sale, which creditors say "caused Midway irretrievably to lose the ability to take advantage of its valuable accumulated net operating losses and other tax assets." In other words, the publisher was robbed of its losses.

According to the complaint (filed as part of Midway's bankruptcy proceedings), Redstone's sale of Midway resulted in more than $700 million in tax losses that would offset his taxable income and entitle him to refunds. Those offsets could have been attractive to a potential buyer of Midway, but with the company's value effectively set at $100,000, the suit states that the publisher lost the ability to claim them in a restructuring or sale.

As the controlling shareholder in the company, Redstone owed a fiduciary duty to Midway and its creditors, the complaint alleges, one that he violated by acting solely in his own interest at the expense of the company and the debt holders. Meanwhile, Thomas (who the suit describes as "an individual of relatively limited means and sophistication") is alleged to have purchased the publisher "for the sole and exclusive purpose" of collecting on millions in secured loans that National Amusements had made to Midway prior to the bankruptcy.

A spokeswoman with National Amusements told Bloomberg News, "This suit is completely without merit. The conduct of Mr. Redstone and NAI was entirely proper, and we strongly disagree with any suggestion that Mr. Redstone or NAI breached any fiduciary duties."

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Discussion

27 comments
jtthegame316
jtthegame316

whats with the midway hate there games were pretty good. until dead space came along bankruptcy is what ea deserved with the crap they were pumping out prior to dead space. dead space is the first game by EA i have enjoyed.

klugenbeel
klugenbeel

So long Midway, was really hoping they would make it through and pull out of the slump, but it seems that no matter what, Midway is dying.

Kleeyook
Kleeyook

Just close it already! :(

Hvac0120
Hvac0120

Something is sour with this whole thing. The people involved may have planned out all of the loopholes that make it a legal. That's shady, but if the system lets them get away with it; what can anyone do? _

Avenger1324
Avenger1324

A bunch of very rich people arguing over who is entitled to a massive loss so they don't have to pay tax for several years.

guitardude1243
guitardude1243

I hope someone keeps the Mortal Kombat series going, I highly enjoyed those games.

nurse_tsunami
nurse_tsunami

It seems inevitable that the corpse of Midway is going to be torn apart by the jackals of its creditors. So long Midway and thanks for the memories.

green_dominator
green_dominator

Umm.....this story just keeps getting weirder every time a new development is posted......Are Midways creditors retarded or something??

RetroGamer34233
RetroGamer34233

It's sad it's come to this for Midway, who was one of the pioneers of gaming's early years.

Pete5506
Pete5506

wow thats the way people party these days

GeigerdolylWodd
GeigerdolylWodd

JunoFallon Posted May 13, 2009 2:11 pm CT Wow. This is getting ridiculous.

No, its getting ugly and fast

JTR_IceBerg
JTR_IceBerg

Midway made nothing worthwhile for the PC anyway... no big loss in my book. In today's gaming industry you either make a solid, engaging, high quality product or you release crap, make a bad name for yourself and slowly fade and die. It's survival of the fittest and while it doesn't provide much room for the gaming companies to experiment with new formulas and ideas, it does ensure they will release quality content if they wish to survive. Do a recap of the top PC games from the past 2 years and you will find many similar qualities like outstanding graphics, functional UI, enjoyable playability, engaging storyline/dialogue, excellent audio, etc. Midway should have been taking notes... - Ice

gatsbythepig
gatsbythepig

Nothing like a good sueing to get the blood flowimg.

ferrarimanf355
ferrarimanf355

I wouldn't say that Midway is done. Kotaku mentioned a while ago that Ubisoft and Warner Brothers are both interested in acquiring Midway. Even if they do fade away, a lot of the spirit lives on in Raw Thrills, Eugene Jarvis' game devhouse.

Wings_008
Wings_008

its sad to see that name fade away:(, just like SEGA

TheArcade
TheArcade

How about just putting MKT on XBLA, PSN, and Wiiware before the company completely goes under?

airboygt
airboygt

In a nutshell: Filing bankruptcy allows Midway to keep their assets that they own while having unpaid debts on their ledgers and even income loss. Without this legal debt protection, the "Creditors"(people that Midway owns $$ to) could forcibly take control of the company's assets and sell them off in order to satisfy the debts that they are owed. Think of bankruptcy as "Passing Go & collecting $200". Midway is able to sell their properties and/or company to whomever they wish, and that person/company will have to eat the negatives on their books, and no one has to consult with the creditors about this. Usually in a case of corporate bankruptcy a federal judge will determine who gets what as far as money owed. These creditors seek to prevent MIdway from taking refuge under U.S. bankruptcy protection laws.

ANSARY
ANSARY

Midway ..... NOOOOOOOOOOOOOO Dont goo Iove your old games MK and alot of other games ..... :(

ele975
ele975

i have no idea what this means, could someone please explain this to me what this means? :)

Rottenwood
Rottenwood

"An individual of relatively limited means and sophistication." Ouch! Nothing like legal battles gettin' personal. While we're on the subject, can I sue for psychological damages caused by playing any Mortal Kombat game after the second one?

Shenmue1000
Shenmue1000

Midway should of been buried a long time ago. They make few name worthy games and even the games they publish are not that good really.

strayfies
strayfies

This happens a lot, they're just buying Midway as a purse. Midway's done, it only surprises me how long they managed to stick around.

JunoFallon
JunoFallon

Wow. This is getting ridiculous.