4Kids Files for Chapter 11

NEW YORK: Unable to reach a settlement with the owners of the Yu-Gi-Oh! franchise after being hit with a lawsuit last month, 4Kids Entertainment has filed for Chapter 11 bankruptcy, covering all of its U.S. wholly-owned businesses but not its U.K.-based subsidiary, 4Kids Entertainment International.

Last month, 4Kids revealed that it is facing a lawsuit from the owners of the Yu-Gi-Oh! franchise, Asatsu-DK Inc and TV Tokyo Corporation. The suit claims that 4Kids has breached the Yu-Gi-Oh! agreement for failing to pay the licensors approximately $4.7 million with regard to certain audit claims. At the time, 4Kids said it would take all necessary measures, including filing for bankruptcy, in order to protect its assets if it could not win the suit. The bankruptcy filing stays the suit until the court orders otherwise.

"We have made every effort to reach agreement with the licensors," said Michael Goldstein, interim chairman of 4Kids Entertainment. "When the company did not receive a positive response from licensors to its settlement proposal, the board of directors was left with little choice but to authorize the filing of a bankruptcy petition under Chapter 11 in order to best preserve the business and assets of 4Kids Entertainment. We continue to believe that the purported termination of the Yu-Gi-Oh! agreement was wrongful and that 4Kids’ assessment of the audit claims will be vindicated in court. If the court rules in favor of the company, 4Kids will pursue the full measure of damages for the significant injury the licensors have caused to the business of 4Kids."

4Kids also filed a variety of first day motions that will allow the company to continue to maintain operations throughout the bankruptcy filing process. "We want to assure our clients, business partners and licensees that during the pendency of the bankruptcy, 4Kids will continue to provide the same level of service and dedication that it has in the past," Goldstein noted. "The company will also continue to explore its strategic alternatives, including the possible sale of the business or reorganization as a stronger and more focused company."