R&H Chapter 11 (updated Feb 14)

Update Thursday February 14th:
Bankruptcy Documents are now available online.

Sunday February 10th 11:30pm (west coast USA):
Deadline reported that R&H would file for bankruptcy on Monday morning.

“Rhythm and Hues will be formally filing for bankruptcy Monday morning, Deadline has learned. Within hours of winning the BAFTA for Special Visual Effects for Life Of Pi, the financially-troubled company informed employees around 9pm Sunday night of the upcoming Chapter 11 filing, insiders say. Rhythm & Hues employees were also told by management not to show up to work on Monday.” – Deadline

Actually this may not be completely accurate or rather, fully explaining the situation, from what we have learned at fxguide.

Fxguide believes that around 9pm Pacific, R&H did call a group of people to tell them that they were being laid off because the company was going to be seeking Chapter 11 protection.  The Deadline article may make it seem to some readers that all employees were let go. This is definitely not the case from what we understand.

From what we at fxguide can tell, the employees who were let go were mainly junior level employees, or their projects or particular jobs on those projects were getting close to being done. This is not to say it is in any way good news, but work will continue this week. It is true that payroll will be delayed, we understand, and staff are uncertain as to when they will get paid, but staff we spoke to believed they would get paid, it was just a matter of time. This particular point seems to have been a lighting rod for many in LA and overseas who believe that the state of the vfx industry is so serious that staff who are owed pay should not even voluntarily continue this week.

R&H is currently working on “Percy Jackson: Sea of Monsters,” “Seventh Son,” and “Black Sky.”  But it has problems meeting payroll and thus is in trouble with cashflow.

As even a simple Google of the term reveals, ‘Chapter 11’ is a form of bankruptcy that involves a reorganization of a debtor’s business affairs and assets. It is generally filed by corporations which require time to restructure their debts. It is named after the U.S. bankruptcy code 11, Chapter 11 is not closure – it is restructuring. Chapter 11 gives the debtor a ‘fresh’ start, subject to the debtor’s fulfillment of its obligations under its plan of reorganization. It is be no means good news. But is is also not closure.

Again a simple internet search of Wikipedia shows other companies that have filed at some point for Chapter 11 include: Digital Domain, Kodak, Delta Airlines, SGI, Chrysler, Chicago Cubs, Bloomingdale’s and Kmart. Some have regrouped, some have been sold or merged, and some continue today.

Around 1:15am LA time, Deadline updated the story to say R&H was closing its doors and “that production on contracted work for Warner Bros.’ Seventh Son, Fox’s Percy Jackson 2, and Universal’s R.I.P.D. has been halted”. Our sources at the same time deny that production has being halted, and are adamant that production will continue on Seventh Son, Percy Jackson, or R.I.P.D.

It is sad that a company with such a great history and one shining creatively as brightly as they ever have should have such hardship, this is just when R&H should be able to rejoice in their massive Oscar spotlight for Life of Pi.  The situation certainly is indicative of huge structural problems in the VFX industry. R&H’s troubles are not the last of such problems one can expect to see in this sector, and yet VFX is more widely used than ever before.

We hope for the employees’ sake and the industry’s sake – that it is our sources who are correct. R&H has a valuable commodity: skillful, polished, and expressive visual effects that can drive a film and move an audience. Hopefully we live in a world where that value can be seen, supported and continue.

We guess we will find out on USA Monday.

Best wishes to all the staff at R&H.

UPDATE: R&H is still continuing production as fxguide reported:

Monday Morning this release was published from the President of Film Division Lee Berger:

“R&H is filing for Chapter 11 reorganization in the U.S. Bankruptcy Court and hope to be in front of a Bankruptcy judge in the next couple days. In the meantime, all of our offices remain open, our clients are aware of the process; we have obtained commitments for financing to complete projects in house at the quality level the studios have come to expect. Following the filing, R+H will be seeking to secure financing for future growth. I believe that we are going to come out of this situation stronger, more efficient, and as prolific as we are now.”

Also unofficially fxguide believes that payroll will be submitted after initial proceedings and the studio loans have actually been transferred (the $20 million from the news reports). Employees will then be paid possibly as early as Wednesday or Thursday but it should hopefully be sometime next week. This is significant as one does not want to see employees treated as bankruptcy creditors, since they have on going bills, mortgages etc. (To be clear, this last paragraph is NOT a direct release or quote – but what we at fxguide understand from sources).