Warner Bros. Entertainment Inc. has filed an emergency motion to halt the bankruptcy court-approved sale of derivative film rights to Alcon Media Group, arguing the transaction violates federal bankruptcy law and offering to pay $1 million more than the winning bidder.
The studio filed the stay motion on November 18, 2025, in the United States Bankruptcy Court for the District of Delaware, seeking to block the sale while it appeals the court's November 11 order approving Alcon's $18.5 million purchase of derivative rights from Village Roadshow Entertainment Group USA Inc. Warner Bros. has offered $19.5 million for the same assets and was previously designated as the back-up bidder at $17.5 million.
At the heart of the dispute are long-standing agreements that give Village Roadshow co-financing rights for sequels, prequels and remakes of Warner Bros. films. Under these arrangements, Warner Bros. serves as the "Production Lender," fronting tens or hundreds of millions of dollars in production costs for years before receiving repayment with interest when films are released. Warner Bros. argues these financing arrangements cannot be transferred to Alcon without its consent under bankruptcy law.
The motion presents three primary legal challenges to the sale. First, Warner Bros. contends the agreements constitute "financial accommodations" that are non-assignable under Section 365(c)(2) of the Bankruptcy Code. The studio argues it assumes all credit risk during film production, a risk that materialized when Village Roadshow refused to pay approximately $107 million in co-financing obligations for Matrix IV after the film was released.
Warner Bros. executives testified at an October 2025 hearing that the studio carries production costs for one to two years after the debtor elects to participate in a film, during which Warner Bros. bears the entire credit risk. Kevin Berg, general counsel for the debtors, confirmed on cross-examination that Warner Bros. bears the risk if Village Roadshow does not pay at the "pickup date."
The bankruptcy court concluded in its November 5 opinion that the "nature of entire transaction" was "not one of financial accommodation," determining instead that the purpose was to jointly exploit intellectual property rights. Warner Bros. argues this contradicts both the plain terms of the agreements and extensive trial testimony showing its role as Production Lender is the agreements' main feature, not an incidental provision.
Second, Warner Bros. argues the agreements are personal services contracts founded on trust and confidence that cannot be assigned over its objection under Section 365(c)(1). The studio entered into the original agreements with Village Roadshow decades ago, partly due to the debtor's association with the Kirby family. The relationship began to deteriorate in 2017 after Vine Alternative Investment Group acquired the debtors.
Testimony at the hearing established that trust-based relationships are important in the studio-financing business. Warner Bros. witnesses noted that project notices, though contractually required, were not sent for nearly two decades due to the close relationship between the parties. The arrangement only became formalized after Vine's acquisition when the relationship soured.
Third, Warner Bros. contends Alcon cannot provide adequate assurance of future performance. The motion highlights that Alcon relies on third-party financial institutions and the Smith family, who have no enforceable commitment to provide financing. Alcon's co-CEO testified the company has already pledged recently acquired assets to different debt facilities and its current liquidity may be insufficient to cover even one film project.
Warner Bros. also points to ongoing litigation between Alcon and Warner Bros. over the film Blade Runner, known as the "Tesla litigation," which creates friction between potential business partners. The bankruptcy court concluded this litigation did not preclude adequate assurance, but Warner Bros. argues this determination warrants appellate review.
To obtain a stay pending appeal, Warner Bros. must demonstrate likelihood of success on the merits and irreparable harm absent a stay. The motion argues irreparable harm exists for two reasons: the sale would force Warner Bros. into immediate obligations under the agreements with an objectionable counterparty, including sharing highly confidential information about upcoming film projects, and Section 363(m) of the Bankruptcy Code would statutorily moot any effective relief on appeal if the sale closes.
Section 363(m) provides that reversal or modification of a sale authorization on appeal does not affect the validity of a sale unless it was stayed pending appeal. Warner Bros. argues this provision would eliminate its ability to obtain meaningful relief even if it prevails on the merits.
The motion contends other parties will suffer minimal harm from a stay. The debtors extended the sale hearing for over four months and repeatedly amended the deadline to close the sale, most recently to December 31, 2025, demonstrating no urgency to complete the transaction. Warner Bros. notes it remains ready to close at its revised $19.5 million bid, meaning the bankruptcy estate would receive more value if Warner Bros. prevails on appeal.
Warner Bros. is the debtors' largest asserted unsecured creditor and argues it should not be prejudiced solely to benefit other creditors who are structurally subordinate to its claims. The studio notes the only derivative work currently in production is Practical Magic 2, and Warner Bros. disputes the debtors' right to participate in that project.
The motion also invokes public interest considerations, arguing the public has an interest in correct application of the law and that the case presents an opportunity for appellate courts to address questions about financial accommodations under Section 365(c)(2) not recently addressed in the Third Circuit. Warner Bros. notes there is a federal interest in protecting creators and owners of copyrighted material.
Village Roadshow Entertainment Group filed for Chapter 11 bankruptcy on March 17, 2025. The debtors conducted an auction on May 28, 2025, at which Alcon was selected as the successful bidder for both the derivative rights at $18.5 million and library assets at $417.5 million. The library assets sale closed in June 2025 after Warner Bros. resolved its objections.
The hearing on the derivative rights sale was adjourned numerous times over approximately five months before being held on October 20-21, 2025. During this period, Warner Bros. increased its bid multiple times, first to $18.5 million on September 8, 2025, and then to $19.5 million on October 19, 2025, the day before the hearing commenced.
The derivative rights agreements trace back decades and cover future sequels, prequels and remakes of Warner Bros. films. Under the 2014 Master Picture Rights and Participation Agreement and subsequent amendments, Warner Bros. offers Village Roadshow the opportunity to co-finance derivative works. If Village Roadshow accepts within 15 business days, Warner Bros. produces the project and fronts all production and marketing costs, including Village Roadshow's share.
Village Roadshow must repay Warner Bros. for its co-financing share by the time the film is released, generally years after accepting the project notice. Warner Bros. collects accrued "Production Interest" along with the co-financing payment. Promissory notes and loan agreements for specific pictures evidence commitments to repay Warner Bros. with interest at rates such as LIBOR plus 4 percent.
The financing risk Warner Bros. assumes materialized with Matrix IV. Warner Bros. bore the full cost of production when the debtors refused to pay their approximately $107 million co-financing share after the film was released and its performance was known. An initial arbitration determination against the debtors exceeded $100 million, and the Matrix arbitration remains ongoing with a final damages hearing scheduled for early December.
The case is being heard by Judge Thomas M. Horan in the United States Bankruptcy Court for the District of Delaware under case number 25-10475 (TMH).
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