Shop Network Files for Chapter 11 After Creditor Wins Order : Television: The firm’s main source of revenue is rent from production companies using its Burbank studios and equipment the court allowed a lessor to repossess.

Shop Television Network Inc. in Burbank, once a distant third in the hotly competitive U.S. home shopping market, has filed for bankruptcy protection after one of its largest creditors won a court order to repossess most of the network’s video production equipment.

The filing under Chapter 11 of U.S. bankruptcy laws puts the court order and other litigation on hold while Shop Television works out a plan with its creditors to repay its debts. The company listed $10 million in assets and $4.9 million in liabilities in its Feb. 12 filing.

Los Angeles Superior Court Commissioner Bruce E. Mitchell on Feb. 7 permitted LB Credit Corp. of San Francisco, a subsidiary of a Vienna-based bank, to repossess $750,000 worth of production equipment, which it was leasing to Shop Television under a three-year contract. The equipment includes cameras, spotlights, power distributors, jumper cables and video players that Shop Television bought with financing from LB Credit. Mitchell also ordered Shop Television to repay $792,000 of remaining debt to LB Credit.

The order threatened Shop Television’s survival because the company’s primary source of revenue is rent from production companies that use Shop Television’s Burbank studios--along with the equipment that Shop Television leases from LB Credit, said Shop Television’s attorney, Deborah Chodos.

Mitchell’s ruling came as part of an ongoing lawsuit brought by Shop Television against LB Credit in August after LB Credit took possession of Shop Television’s $360,000 security deposit and demanded immediate payment of Shop Television’s $1.6 million balance of remaining lease installments, according to court documents. In a countersuit, LB Credit said it took that action after Shop Television stopped making monthly lease payments to LB Credit on the production equipment.

The lawsuit and now the bankruptcy arose out of the loss last May of Shop Television’s principal customer, J.C. Penney Co., which had contracted with Shop Television to produce its JCPenney Television Shopping Channel. J.C. Penney canceled the show, which featured models showcasing the retailer’s latest fashions, after the retail slump and other factors cut into the show’s profits, J.C. Penney said.

LB Credit viewed J.C. Penney’s action as a “material adverse change in circumstances” that put in doubt Shop Television’s ability to make good on future lease payments for the production equipment, LB Credit said in its countersuit. As a result, LB Credit demanded full payment of the lease, according to court documents.

Since J.C. Penney pulled out, Shop Television has been operating with a shoestring staff primarily as a landlord of the $3.8-million Burbank production studios it had hoped to use to produce the J.C. Penney shopping channel.

Instead, the company now leases the studios and the LB Credit-leased equipment to a variety of production companies for commercials and other programming.

Cancellation of the J.C. Penney program forced Shop Television chief executive Michael E. Rosen in May to lay off 110 of the company’s 120 employees.

Last March, Shop Television sued J.C. Penney over alleged breach of contract and J.C. Penney in turn countersued Shop Television.

The suits are expected to come to trial soon in Los Angeles Superior Court, Chodos said.