Livent May File for Bankruptcy, Sources Say

Live-theater producer Livent Inc., whose troubles have continued to mount amid an inquiry into financial irregularities by its previous management, was considering filing for Bankruptcy Court protection in the United States and Canada late Tuesday, sources close to the company said.

The development marks the latest in a long list of headaches encountered by the investment group that controls Livent. The group, which took control in June, is led by former Hollywood agent Michael Ovitz, former entertainment investment banker Roy Furman and Boston financier Thomas Lee.

The Toronto-based firm is North America’s leading producer of live theater, with hits that include “Ragtime,” “Show Boat” and “Fosse.”

The company is in talks with lender Canadian Imperial Bank of Commerce, sources said. Livent has a line of credit of about $32 million with the bank, which is said to be balking at expanding Livent’s credit line by an additional $6.5 million. A continued impasse could trigger the bankruptcy filing, sources said, but other financing alternatives are being considered. Livent is also said to be in talks with its bondholders.

Toronto’s National Post newspaper reported that Livent’s attorneys are working on a possible filing in the U.S. under Chapter 11 of the U.S. Bankruptcy Code (a Chapter 11 filing shields a company from creditors as it reorganizes its finances), and for relief under Canada’s Companies Creditors’ Arrangement Act.

In a statement, Livent said it is “carefully exploring the company’s options and will pursue those actions that we believe are in the best interests of the company and its constituents.”

Since taking control, Livent’s current management maintains that it has uncovered numerous financial shenanigans it alleges took place under theater impresario Garth Drabinsky, who was suspended in August from the company. Ovitz has invested $20 million in the company, and has in effect gained control.

Among the allegations are that dual books were kept, that advances were improperly booked and that Drabinsky cut numerous secret “side deals” that could come back to haunt the firm financially. Sources said government officials in the U.S. and Canada are investigating.

Drabinsky’s representatives have argued that the Ovitz investment group was aware of the company’s accounting practices when it took over. His representatives have also denied allegations that two sets of books were kept.

Livent has been expected to restate its last few years’ earnings but has delayed doing so amid the sweeping internal investigation into its finances. Livent’s stock has not traded since the company disclosed in August that it was looking at financial irregularities and that Drabinsky and another Livent executive were being suspended.