Realtime Worlds, the Dundee-based developer of MMO All Points Bulletin, suddenly entered administration earlier this week.
Those of you who follow games industry developments will have known about this development since it broke (and for those who want more background or info on recent developments, have a look here on Develop or here on Edge). If you’re interested in why it happened, Nicholas Lovell at GamesBrief has written up an interesting early analysis here. Lastly, if you want to know about administration and what it means, have a look at my post, “What is administration?” (which featured on Gamesindustry.biz earlier this week).
As for RTW, my early thoughts from a lawyer’s perspective:
- While the purpose of administration is to try to rescue a company in severe financial difficulties, there is a lot of stigma for a company entering administration, since there is usually a perception that something must have gone fundamentally wrong with the company or its management if it couldn’t be saved.
- Moreover, entering administration (or any other insolvency proceedings, e.g. liquidation) usually has severe legal consequences: (1) banks will withdraw funding and exercise their security; and (2) suppliers and other parties with whom you have controls will (if their contracts are well drafted) use contractual prohibitions on either party entering insolvency as justification to terminate their contracts with the company. In other words, once you enter administration you can bet upon your funding and your contracts being cut, immediately. Not good. Then everyone will make a claim for all the money they’re owed and potentially even sue the company. That’s worse.
- As a result, virtually every company in financial trouble will try and do anything at all that means it can be rescued without formal insolvency proceedings being started. On that basis, I would guess that RTW has been in discussions for some time about trying to rescue itself, but clearly for whatever reason that didn’t succeed or it just wasn’t enough.
- On the other hand, RTW clearly has some valuable assets, so it may be that the administrators can rescue the company (or at least part of it) in some way, shape or form in the near future. It looks like there are already promising developments on that front.
No doubt we’ll hear more about this in the next few days and weeks, so I’ll update this post in due course.
Postscript: Rob Fahey at GI.biz has just written an interesting editorial on the impact of RTW’s fall could have on the UK games industry in the future.
Update: looks like a bunch of other sites have picked up my comments on this issue, including (form a quick Google) 1UP, Nukezilla and GamePlanet. That’s nice.
Original post: Gamesindustry.biz reports on reports of unpaid wages and withheld redundancy packages have from Rebellion Derby, the former Core Design studio responsible for the creation of Tomb Raider. They talked to me about the legal implications – here’s their article:
Reports of unpaid wages and withheld redundancy packages have begun to emerge from Rebellion Derby, the former Core Design studio responsible for the creation of Tomb Raider.
Rebellion acquired the studio and its assets in 2006, but announced its closure in March of this year – at the same time as a number of junior positions were made redundant at the company’s main Oxford studio.
An email received by GamesIndustry.biz from the wife of a Rebellion Derby employee claimed that the company, “has failed to pay all the remaining Derby employees any wages owed for April, and any agreed redundancy payments for all those who left during April.”
“In addition to this there are still a small number of employees working in the Derby studio – effectively for free, asset stripping the building,” accused the email.
“Rebellion are claiming ‘financial difficulties’ as the reason for non-payment of wages and redundancy packages, but this has all been done verbally, over the phone, and are refusing to send anything out in writing,” continued the claim. “They seem to be claiming that as Rebellion Derby is registered as a separate legal entity, and it’s not currently making money, that they is no money to pay their remaining, and just left employees.
“The feeling amongst those who have been left is that it looks like they will be putting the studio into liquidation in order to get out of paying the packages that they have agreed.”
However, Jas Purewal, a lawyer at Olswang LLP and writer of GamerLaw, has confirmed to GamesIndustry.biz that as a subsidiary Rebellion Derby’s ability to pay is not dependent on its parent company’s situation.
“The mere fact that it has a solvent parent company is immaterial,” stated Purewal. “Since generally parent companies are not legally obliged to rescue their insolvent subsidiaries. A parent company is only liable to contribute funds to its insolvent subsidiary if there is some pre-existing debt which the parent already owes to the subsidiary. Generally if there is no debt, there is no obligation.”
Employees of an insolvent company are termed ‘preferential creditors’ and are therefore entitled to have their wages and redundancy payments paid to them in priority to most other creditors’ claims. However, this depends entirely on whether the insolvent employer company has the funds to actually pay them with,” he added.
“It’s worth bearing in mind though that if you are made redundant by a company in the UK and that company is unable to pay you, there is a statutory body called the Redundancy Payments Office. The office was set up expressly to help employees where their companies either cannot or will not pay them.”
Referring also to the ongoing legal disagreements between Infinity Ward employees and Activision, Purewal pointed out: “There is a theme here of an increasing awareness amongst games developers that receiving payment for their work is not necessarily set in stone – it can be affected by other developments.
“For all developers it’s worth paying close attention to your employment agreement and making sure it’s updated and that you and your employer are clear as to its terms to avoid any misunderstandings in the future”.
Representatives from Rebellion have so far failed to respond to requests for comment when contacted by GamesIndustry.biz.
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German console and PC publisher CDV Software Entertainment AG has filed for insolvency at the district court in Frankfurt, reports Gamesindustry.biz.
CDV’s insolvency comes soon after its victory over Southpeak in a long-running UK legal battle by CDV against Southpeak and its subsidiaries over alleged breaches of contract and copyright infringement, which saw Southpeak being ordered to pay substantial damages to CDV.
As Gamesindustry reports, Southpeak has had its own share of financial troubles recently, with publisher Paradox suing it for around $585k which it claimed Southpeak was unable to pay as it had become insolvent. In the event, Southpeak settled with Paradox a month or so after. (A standard strategy when a company owes you money but is in poor financial condition is that you sue them for repayment in the hope that they will settle quickly with you, meaning they keep the business running a while longer and you get more money from the settlement than you would do if the company went into insolvency. This strategy faces legal issues,but it can work – as it did for Paradox).
No doubt further information will emerge as more details of CDV’s entry into insolvency, in particular the court paperwork, emerge. In particular, how long before someone makes an offer to buy up its assets?
- ‘Chapter 11’ is a form of bankruptcy protection for the company
- In other words, it permits the company to restructure its debts while still ‘trading through’ its financial difficulties.
- Chapter 11 does not of itself kill off a company, nor does mean it can renege on its debts or other liabilities. The whole point of Chapter 11 is that it is a measure of last resort to enable a company to survive tough circumstances (although a company may come out the other side looking very different)
- That said, if a company cannot survive even in Chapter 11, then sometimes it may need to enter more serve insolvency proceedings
The shareholders and board of the Company have removed Mr. Whiting as a board member and as an officer and terminated his employment with the Company and any of its subsidiaries. The Company has joined the litigation against Mr. Whiting for alleged wrongdoing.“
Just a quick one: Oxygen Games, a UK publisher of predominantly sports titles, last week controversially entered administration – specifically, a pre-pack administration. The full story is at Gamesindustry.biz (articles here). Now creditors are beginning to ask questions about exactly what is going on. The latter article carries a quote from our own Jas Purewal (reproduced below):
” ‘Pre-packs can be very [divise]. The commercial logic is sound. But there’s this idea that pre-packs are seen as a done deal that leave creditors out in the cold,” Jas Purewal, an associate of legal firm Olswang told GamesIndustry.biz.”In circumstances where it wasn’t for the pre-pack [the company] would be broken up then pre-packs are becoming more and more common.’
‘It’s worth noting that pre-packs are also under increasing amounts of scrutiny as well because there can be situations where a pre-pack is done in controversial circumstances and creditors may be willing to fund legal challenges against it.’ “