Beleaguered Livent Files for Bankruptcy

The financial muck at Livent Inc. got even deeper Wednesday as the live theater producer sought protection from creditors in U.S. Bankruptcy Court, said it earned $61.7 million less than it had previously reported and fired its two former top executives.

The developments mark another setback for a glitzy, high-powered group of investors who took over the company, led by former Hollywood agent Michael Ovitz, former investment banker Roy Furman and Boston investor Thomas Lee. It also raises questions about how thorough a financial vetting the group gave Livent before taking control in June.

The Toronto-based company, known for “Ragtime,” “Show Boat” and “Fosse,” also sued its former top executives, Garth Drabinsky and Myron Gottlieb, for about $146 million, alleging widespread financial shenanigans.

Drabinsky and Gottlieb in turn said they were suing Ovitz and Furman, who now runs Livent, for about $130 million.

The Ovitz group contends that it has been the victim of massive fraud by Drabinsky and Gottlieb, who they allege kept two sets of books, cut secret side deals that came back to haunt the company and did not properly expense such costs as cast salaries and advertising.

Livent’s current management also alleges that Drabinsky and Gottlieb improperly shifted expenses from one quarter to the next to inflate income, and improperly accelerated revenue that came through such things as long-term sponsorships.

Under Drabinsky, Livent became North America’s biggest live theater producer, known for elaborate spending and showmanship on Broadway and in cities where the company took its shows.

On Wednesday, the company formerly fired Drabinsky and Gottlieb, both of whom were already under suspension.

Drabinsky and Gottlieb on Wednesday said they are suing Ovitz and Furman, alleging that they conspired to remove Drabinsky as artistic director of the company, issued statements to embarrass Drabinsky and caused him such financial problems that he had to sell his shares at a distressed value.

They also allege that Ovitz was secretly approached about being an investor without Drabinsky’s knowledge, and attempted to make public a report from an accounting firm to hurt Drabinsky.

Livent did not respond formally to Drabinsky’s allegations. Sources close to the company called it a “transparent attempt” to shift blame.

Livent said that it made the filing in Bankruptcy Court in New York to put into motion a comprehensive financial revamping. A source close to the company added a filing was necessary to get rid of many of the questionable contracts Drabinsky had arranged. Livent also said that it is trying to arrange short-term financing to bolster its liquidity, adding that additional financing will be needed.

Sources said that Livent is looking at a variety of scenarios, including finding a financial infusion, possibly selling assets such as some of its real estate and even selling the entire company. The sources said the company may seek a partner, such as a major entertainment company.

Livent only filed for Chapter 11 bankruptcy protection in the U.S. The company said it is considering filing a similar action in Canada.