High Profile Judgment against Gawker Media Group Illuminates the Bankruptcy Process

When The Wall Street Journal (WSJ) reported that Univision Communications, Inc. won a court-administered auction of assets belonging to Gawker Media Group (08.16.16), I thought this case perfectly illustrated how the Chapter 11 bankruptcy process works. For example …

A Single or Series of Disastrous Financial Incidents Disrupts a Company
In this case, a court order to pay a $140 million court award to Hulk Hogan—following his invasion-of-privacy suit against the media outlet—led to a very costly legal battle and outcome. This judgment followed a series of prior legal claims that also weakened the company.

The Debtor Files for Financial Relief
Gawker Media Group filed for Chapter 11 bankruptcy relief. When a Chapter 11 bankruptcy petition is filed, the court appoints a bankruptcy case trustee to oversee the process. The bankruptcy trustee works with the debtor and/or debtor’s attorney to review company assets, assess liabilities, review creditor claims and decide whether and how assets will be liquefied (sold and distributed) to repay creditors. The bankruptcy plan typically relieves the debtor of a portion of financial obligations while also structuring options to repay creditors.

Before the trial, Gawker founder Nick Denton estimated the company’s value at $250 million, but during the proceedings, the jury was told the company was worth $83 million. The bankruptcy trustee’s job was to review all financial data provided to the court and assess all submitted documentation to determine the accuracy of claims about debtor assets.

The trustee typically works with the debtor’s attorney to ensure that secured creditors are repaid and non-secured debt is appropriately resolved according to the debtor’s ability to pay.

In this case, Gawker listed 20 unsecured creditors, including Mr. Hogan.

The Court Sets a Date for Auction of the Debtor’s Assets

After assets are established, the bankruptcy trustee schedules an auction to transform liquifiable assets into funds to repay creditors. In this case, publisher Ziff Davis offered $90 million for Gawker, “but withdrew its offer based on the price and terms set by the court.” In the end, Univision bid $135 million, according to the WSJ report, and will not be responsible for payment of the Hogan lawsuit.

The Bankruptcy Trustee Reviews the Auction Results and Decides Whether to Approve the Bid(s)

At the time of the WSJ report, the trustee still had to approve the sale. After the terms of a bankruptcy sale are made public, and before the judge issues a final decree, the creditors (secured and unsecured) are given an opportunity to review and object to details of the sale. The bankruptcy trustee gathers all creditor responses, then makes recommendations to the court. Finally, the bankruptcy court judge makes the decision to approve the bankruptcy and liquidation.

In the above case, “proceeds from the sale will be used to pay Gawker’s creditors, finance further litigation costs, and cover whatever damages may ultimately be leveled following appeals,” wrote Lukas I. Alpert in WSJ.

Resolution of this Case

Final details would be determined by the courts. In prior court action (before the Chapter 11 corporate bankruptcy filing), “Mr. Denton (Gawker founder) was found personally liable for $10 million of the Hogan judgment and jointly liable, along with former Gawker editor A.J. Daulerio, for $115 million of the verdict levied against the company.” Mr. Denton then sought personal bankruptcy protection earlier this month to freeze collection actions from Hulk Hogan.

For more information on this case, read the WSJ article in full. If you are contemplating a personal bankruptcy (Chapter 7 or Chapter 13) and would like information to determine whether bankruptcy is the right option for you, feel free to Solomita Law for a free consultation.

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