Redbox owner to be liquidated, all DVD rental kiosk locations will be closed

The bankrupt owner of Redbox Entertainment Inc. will be liquidated, a judge ruled Wednesday, after lawyers for the company and lenders accused its former chief executive officer of mismanaging the business and failing to pay workers or fund their health benefits.

Judge Thomas Horan said during a Delaware court hearing that Redbox’s publicly traded owner, Chicken Soup for the Soul Entertainment Inc., will be shut down by an independent trustee after an earlier effort by the company to borrow fresh funds to pay employees failed. About 1,000 workers will be laid off.

The judge ruled after bankruptcy lawyers for the company, which runs 24,000 DVD rental kiosks, said money deducted from employee paychecks to cover health benefits were not used to cover those expenses. The allegation concerns actions taken before Chicken Soup filed Chapter 11 in June and don’t involve the company’s bankruptcy advisers who were retained to try and salvage the business, Horan said.

Alleged misdeeds described in court Wednesday have not been substantiated in an evidentiary hearing, Horan said. However, claims that money earmarked for employee benefits was misappropriated are “incredibly disturbing,” he added.

“I find it sickening, frankly,” Horan said.

Managers of bankrupt companies often get latitude to continue operating the business while they attempt to restructure in Chapter 11. But lenders and judges can force a company to liquidate under the supervision of a court-appointed trustee if a business is badly run or creditors allege misconduct.