[EVA] ADV Films shuts down

Wed Sep 2 18:27:05 EDT 2009

At 03:32 PM 9/2/2009, V V wrote:

>[...]

>So basically, to exploit legal loopholes to wipe its debt, plus drastically re-brand to shed investor fears about "ADV" following the disasterious Sojitz partnership of 2006.
>
>***The problem was that even when the Sojitz deal went bad...part of the original deal was to give Sojitz 20% ownership of ADV Films.  Even after the deal fell apart, Sojitz technically owned 20% of ADV; 20% of your company being owned by a hostile company isn't a *good* thing.

No, but it's not a terribly bad thing either.  I discussed this
at length with my father today, who's been playing the small
company game since the 1960s, and he says that absent weird
structuring of the Sojitz investment (e.g. it being a different
class of stock), all they get for the stake is most likely the
right to name 1 board member, who can be easily ignored, and of
course everyone shares equally in any dilution caused by a new
investment, but they certainly wouldn't have a veto over such.

>I'm not clear on this, but I don't think Sojitz will own 20% of "Section 23" and its 3 sibling companies.

I can't see why the American principles in all this would
give Sojitz anything but their share of the dregs of A.D. Vision,
Inc. (the original parent company that's shutting down).

>I think the rebranding was, in no small part, an ingenious ploy to finally get the monkey of Sojitz off ADV's back...by just shifting the entire surviving ADV apparatus to "Section 23".

I seriously doubt that; if the report by the owner of The Anime
Corner is correct and John Ledford, who owns the other 80% of
A.D. Vision, Inc., has nothing to do with Section 23, getting him
out of the game could have been a reason.

(See http://animecornerstore.blogspot.com/2009/09/adv-films-shuts-down.html

or http://tinyurl.com/lbftrk )

At this point we can't say what the reason(s) for the restructuring
were, but I can say that your thesis below is very unlikely, at
least if you take it as far as implying they've escaped all their
outstanding debt.  The US is debtor friendly, but not THAT friendly:

>Now there's the thing about the name "Section 23" that someone pointed out to me, which is utterly priceless:   
>
>"Section 23" is the code in Texas debt law which explains how debts can be protected by registering and transferring securities to different corporate entities. 
>
>So to finally rebrand, drastically "cut the fat" too, and get Sojitz off of them, ADV rebranded into a "new company", and instead of just calling themselves "New Company", they named it after *specifically* the section of the Texas business law code that ADV just exploited to wipe their debt by rebranding into a new company!!!
>
>http://www.ssb.state.tx.us/Texas_Securities_Act_and_Board_Rules/The_Texas_Securities_Act.php#SEC23
>
>It's like calling your company "Fifth Amendement" or "Chapter 11".

Ummm, no.  That provision, which I just skimmed, allows the
State of Texas to stop a fraudulent sale of securities.  There
are no securities changing hands here, although the shares of A.D.
Vision Inc. are obviously going to go "poof".

What's happening is a transfer of assets *along with the
liabilities associated with them*.  From A.D. Vision's press
release, which is all you'll find at their web site:

http://www.advfilms.com/

  FOR IMMEDIATE RELEASE

    A.D.VISION, INC. CONCLUDES SERIES OF ASSET TRANSACTIONS

  HOUSTON, September 1, 2009 — A.D. VISION, INC. ("ADV" or
  the "Company") announced today that June 1, 2009, the
  Company concluded a series of transactions that are
  expected to result in seamless delivery of home video
  products and television programming to customers.

  Through an asset purchase agreement, AEsir Holdings, LLC
  ("Aesir") acquired a subordinated interest in selected
  programming from ADV's film library together with other
  intellectual property subject to all liens and security
  interests of the Company's senior secured lender. The
  transaction requires Aesir to assume specific obligations
  and scheduled liabilities of the Company under legacy
  license agreements associated with the acquired
  programming.

  Concurrently, the Company concluded an asset purchase
  agreement with SXION 23, LLC, doing business as "Section23
  Films," a home video distribution company, under which it
  assumes account servicing and distribution operations in
  connection with the library acquired by Aesir, subject to
  all liens and security interest of the Company's senior
  secured lender.

  [...]

ADV's senior secured lender, whomever that may be, still has
its hooks into these properties.  It will go along with this
restructuring as long as it's convinced they will be more
likely to produce money than an auction of them in these bad
economic times (in general and for anime).

Any junior creditors get whatever's remaining of A.D. Vision's
carcass, and the stockholders whatever's left if that, which
is not likely to be anything.

As long as no one in the priority list below the senior secured
creditor can show they have any interest left in the transferred
assets they won't get anywhere if they complain.  A final settling
of affairs with those other creditors could also be a reason to
do this restructuring.

>[...]

>Further, word out on the street is that "Sentai Filmworks" is also registered in Houston and is just a front company for ADV (this is entirely legal and happens all the time)......so the real question is what is the relationship between "Sentai" and "Section 23" going to be.

I've gathered, but am not at all sure about it and didn't much
review the various news reports to get confirmation, that Sentai
has the rights to the new titles and contracted with A.D. Vision,
Inc. to distribute them (and with ADV's studio Amusement Park
Media to produce them).  Distribution along with many/most/all???
of the relevant A.D. Vision Inc. employees has now shifted to
SXION 23 which is doing business as (DBA) Section 23 Films. I.e.:

>Still, reports today (just one day after the change) say that Section 23 is now distributing the 5 new titles that Sentai acquired for this November.

>So YES, Section 23 and Sentai are all essentially dummy companies (like the Marduk Institute in Evangelion...)

Heh, but no.  If you go to the offices of Section 23 you'll find
real people doing real things.  Sentai is "real" in that (I gather)
they have the rights to these new properties in the US.  They may
not have a full time office with people to handle them, but that's
not needed, their work is "bursty" (e.g. license a title and arrange
for it to be produced and distributed; this keeps it out of the
hands of A.D. Vision Inc., if for no other reason than that any
smart rights holder wouldn't license a property to it at this point).

>but who cares: legal tricks that allow ADV to survive, albeit in changed form.  The key thing is that unlike Geneon or CPM, this is a SMOOTH transition with NO DISRUPTION of DVD releases.

That's the intent, and absent e.g. an injunction from a creditor
that's likely to happen.  I think getting a preliminary injunction
would be *extremely* difficult, so I'm not worried about that.  If
a lawsuit arises from all this we'll hear all about it, but note
that the senior secured creditor will be very much against it and
if they have enough skin in the game they'll help fight it.

>The question though, is if this is just ADV's last gasp, and they're just making Section 23 to burn off remaining inventory before finally giving up....

Not likely if Sentai has contracted with them to release the new
titles "Blue Drop, Polyphonica, Special A, Tears to Tiara, and the
second season of You're Under Arrest" plus the "second DVD collection
of little snow fairy sugar" (hey, isn't that a Geneon license rescue?)

(See http://www.animenewsnetwork.com/news/2009-09-02/sentai-filmworks-adds-blue-drop-polyphonica-special-a

or http://tinyurl.com/kwm89x

Which mentions that they are also distribution two live action
horror titles from Switchblade Pictures.)

                                        - Harold