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Chicken Soup for the Soul Entertainment (CSSE), the parent company of movie kiosk business Redbox, will fire 1,000 employees after filing for bankruptcy.
The parent company reportedly missed payroll last month amid an investigation into allegations that funds meant for paying employees were misappropriated by its former CEO, Chris Rouhana.
CSSE’s Chapter 11 bankruptcy case was converted to a Chapter 7 liquidation proceeding on Wednesday, as lenders refused to continue financing the company.
Under a Chapter 11 case, CSSE – which purchased Redbox in 2022 – would have been allowed to continue operations while planning a reorganization of the company, but under Chapter 7, the company’s assets will be liquidated.
Thomas Horan, a bankruptcy judge in Delaware overseeing the case, said Wednesday that “1,000 people are about to lose their jobs and they’re not even going to be paid for the work they did.”
Following liquidation, 1,033 employees will be left jobless and without pay or extended benefits. “There is no means to continue to pay employees, to pay any bills,” Horan added, describing the situation as “sickening.”
As well as already going weeks without pay, employee medical benefits for some workers have been since suspended since mid-May, according to Deadline.
The judge declared he would appoint a trustee to investigate the accusations, which are yet to be proven, against Rouhana, who has denied the claims.
Funds meant for health care benefits were reportedly deducted from the paychecks of the staff, with company lawyers saying they may have been directed elsewhere.
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Shortly before resigning as CEO on June 24, and filing for bankruptcy, Rouhana – who is the controlling shareholder with nearly 80% of the company’s shares – dissolved the company’s board of directors.
One of CSSE’s top lenders, HPS Investment Partners, argued to the court the move was a decision to entrench his power, and alleged there is a “credible basis to hold Mr. Rouhana personally liable for misuse” of funds, including those meant for employee wages, after missed payroll meant workers also missed out on healthcare benefits last month.
Rouhana’s attorneys argue HPS has made “false and scandalous allegations,” and that the ex-CEO “believes the court and the parties’ current focus must be on the employees who have already rendered services to the debtors being immediately paid their wages and their health insurance is reinstated.”
