RI bucks trustee on 38 Studios sell-off

PROVIDENCE, R.I. (WPRI) – Rhode Island is looking to hold a yard sale to liquidate computers, office supplies and furniture left behind at 38 Studios' vacant headquarters, according to documents filed in the company's bankruptcy case.

Jeoffrey Burtch, the Delaware trustee handling 38 Studios' liquidation, asked a judge for permission Wednesday to abandon "equipment, furniture and fixtures ... including but not limited to all computer equipment, and all related tangible personal property located at or in [38 Studios'] offices in Rhode Island and Maryland."

In the filing, Burtch said he has tried “to no avail” to convince the R.I. Economic Development Corporation to let him sell the leftover equipment.

“The RIEDC has expressed its intent to seek the appointment of a receiver in Rhode Island to liquidate its collateral outside these chapter 7 proceedings,” Burtch wrote. A spokeswoman for the EDC was not immediately available for comment.

Burtch said he wanted the EDC to allow "the use of cash collateral and an appropriate carve out for the Trustee to secure and maintain the assets and run an orderly sale process for [38 Studios'] assets."

"Without such an arrangement, and with rent, equipment lease payments, security fees, utility charges, legal fees, etc. continuing to accrue, the Trustee was left with no reasonable choice but to file this Notice," he continued.

The document does not state the total value of those assets but earlier bankruptcy filings put an estimate on the computers, office equipment, furniture and software at $2.9 million. A little more than $400,000 of that comes from the company's Baltimore office.

"We want to move all the Baltimore assets to Rhode Island so that the assets can be here for us to oversee the sale of the assets," said EDC spokeswoman Judy Chong.

Longtime bankruptcy lawyer Christopher Lefebvre – who is not involved in the 38 Studios proceedings – said the filing means the state's lawyers want to see if they can get more bang for their buck by selling the equipment themselves rather than going through the trustee.

“One thing is crystal clear: the trustee in this case has given an indication there is certainly a little bit of frustration or tension between the trustee and state of Rhode Island,” Lefebvre said. The EDC is being represented in the case by its new general counsel, the Pawtucket-based law firm Shechtman Halperin Savage LLP.

“Delaware is the large bankruptcy filing mecca and these trustees have very good connections and abilities to liquidate miscellaneous property," he said. "But Rhode Island says, ‘No no no, thank you for the invitation but we prefer to have our own ability to liquidate this personal property and apply the proceeds to our own debt.’”

Other creditors in this case have until Aug. 1 to object to the request. NFS Leasing Inc., a Massachusetts company that rented computers and software to 38 Studios, last month asked the judge to return its equipment or resume making lease payments for it.

38 Studios and its three subsidiaries filed for bankruptcy on June 7 after running out of cash, less than two years after Curt Schilling agreed to move the company to Providence in exchange for a $75 million taxpayer-guaranteed loan.

The company left behind more than $150 million in debt, including about $116 million owed to Rhode Island.
The next hearing in the bankruptcy case is scheduled for Aug. 8 at the federal courthouse in Wilmington, Del.

Target 12 Investigator Walt Buteau contributed to this report.

Tim White ( twhite@wpri.com ) is the Target 12 investigative reporter for WPRI 12 and Fox Providence. Follow him on Twitter: @white_tim

Ted Nesi ( tnesi@wpri.com ) covers politics and the economy for WPRI.com and writes the Nesi's Notes blog. Follow him on Twitter: @tednesi