38 Studios: Inside a bankruptcy filing

PROVIDENCE, R.I. (WPRI) - The 38 Studios Chapter 7 process could take up to 18 months to finalize, according to a local attorney who specializes in bankruptcy cases. The company owes about 12 times more than it currently claims in assets.

Christopher Lefebvre, whose Pawtucket law firm has 47 years of experience in bankruptcy filings, said day one of the process in Delaware will involve the court appointed trustee, Jeoffrey Burtch, asking one or more company representatives about what is left for creditors.

“This is a fairly informal proceeding. It is under oath,” Lefebvre said. “But a representative of the company is the one who will testify. I doubt it will be Mr. Schilling himself.”

According to the bankruptcy filing, Schilling owns 83 percent of the under water company. The combined debt of 38 Studios and 38 Studios Baltimore is $272.1 million, with assets pegged at just over $22 million.

Twelve-point-seven million dollars of the assets listed by 38 Studios is in the Economic Development Corporation capital reserve fund. That money was set aside as part of the loan guarantee agreement, to pay one year of what is owed to the state. Subtracting that from the company’s total assets leaves less than $10 million for everyone else. There are more than 1,000 creditors and the deadline to file claims is at the end of September.

The company's bankruptcy documents indicate Rhode Island is owed just under $116 million which is the $75 million loan guarantee, plus interest and fees.

The writer of the Kingdoms of Amalur; Reckoning storyline, R.A. Salvatore who was the 38 studios Creative Director, filed a claim for $1.7 million. On the other end of the spectrum is an individual named Alex May who filed a claim for $11.49.

“A notice is sent out to creditors and typically what happens is people and companies from all over step forward and file claims,” Lefebvre said. "Obviously, they will not all be paid."

There are 59 pages of names of 38 Studios' former employees who filed claims for unpaid wages that total about $1 million.

“Fortunately, wage claims generally get paid sooner and are higher on the payment scale than general unsecured creditors.”

Lefebvre said the trustee Burtch could potentially uncover more money but Lefebvre is skeptical that enough additional money will be secured to put a dent in what Rhode Island is owed.

“Taxpayers are going to take a big hit in this case,” Lefebvre said.

He added that commercial Chapter 7 cases can take as long as 18 months.

Send your news tips to Walt Buteau at wbuteau@wpri.com and follow Walt on Twitter: @wbuteau