Qintex Entertainment Files for Bankruptcy Protection

Qintex Entertainment Inc., whose Australian affiliate’s deal to buy MGM/UA Communications Co. collapsed nearly two weeks ago amid financing problems, has filed for bankruptcy law protection after it failed to make a debt payment, the company announced Friday.

In addition, David Evans resigned as president, chief executive and a director, but he will remain as a consultant until a successor is appointed, Qintex said.

The bankruptcy filing raises new questions about just how cash-strapped is Qintex Australia, the Brisbane-based broadcasting and resorts empire founded by investor Christopher C. Skase. That company owns 43% of Qintex Entertainment.

The Beverly Hills-based television production firm, best known for co-producing the hit “Lonesome Dove” miniseries, filed late Thursday for protection from its creditors under Chapter 11 of the U.S. Bankruptcy Code. Under Chapter 11, a company continues operating while it works out a plan to pay its debts.

Qintex’s two subsidiaries, Hal Roach Studios and Qintex Productions, were included in the bankruptcy filing.

In over-the-counter trading Friday, Qintex stock plunged $2.63 a share to close at $1.50, with more than 1.43 million shares changing hands.

Qintex Entertainment filed for bankruptcy because it and Qintex Australia were unable to arrange financing to pay $5.95 million due to MCA Inc. as part of a distribution agreement, said Qintex Entertainment Executive Vice President Jonathan Lloyd. The company relies primarily on Qintex Australia to provide working capital.

“It was a grave disappointment that they were unable or unwilling to fund that obligation,” Lloyd said. Qintex Entertainment officials feared that failure to make the MCA payment might trigger acceleration clauses in its other debt, he said.

“This company . . . has grown at a very rapid rate. That kind of growth in a production company requires a lot of capital and deficit financing,” Lloyd said. “It was always understood (that Qintex Australia) . . . would be there to fund the growth of the company.”

Evans, an Australian who was closely associated with Qintex Australia, resigned for “personal reasons,” he said.

A Qintex Australia spokesman said the company had “re-evaluated its position as a significant shareholder and substantial creditor” of the U.S. company and decided to “minimize the degree of further loans” to the affiliate.

Qintex Australia is not having financial problems, the spokesman said. “Nothing should be read into this concerning the viability of Qintex Australia. This is Qintex Entertainment,” he said.

Qintex Entertainment maintained that the bankruptcy filing was unrelated to Qintex Australia’s shredded deal with MGM/UA.

The $1.5-billion sale of MGM/UA fell apart Oct. 10 after Qintex Australia failed to deliver a $50-million letter of credit. MGM/UA responded by filing suit against Qintex Australia alleging breach of contract, fraud and negligent misrepresentation that resulted in damages of more than $50 million.

Lloyd said Qintex currently has enough cash on hand to pay its bills. “We do think the business is viable,” he said.

For the nine months ended April 30, Qintex Entertainment reported operating revenue of $76.8 million and income before an extraordinary credit of $2.3 million. Qintex reported losses in the previous two fiscal years. On April 30, the company had assets of $220 million and net worth of $63 million.

“Management didn’t make the decision lightly,” Lloyd said. “We feel very distressed about the effect on the stock price and our shareholders.”