Claims Against Midway Directors Dismissed

For those of us who grew up with Mortal Kombat, or had a Bally/Midway pinball machine in our basement, it is sad to see the once great publisher fallen so low. Midway filed for Chapter 11 bankruptcy last February and since then has been having a fire sale, including selling its US assets to Warner Bros. Entertainment Inc. for $33 million last July. Midway's insolvency was due to mounting corporate debt, and exacerbated by Sumner Redstone's decision to sell his 87% stake in the company in November 2008.

Not surprisingly, Midway's creditors have gone to court to challenge the decisions of Midway's board of directors that led to the collapse. Last week, a U.S. bankruptcy judge dismissed the creditors' claims, and ruled that the former directors did not breach their duties to stakeholders or engage in fraudulent acts. According to Judge Kevin Goss, the directors could not be held "liable for decisions they [made] and actions they [took] in an effort to prolong the corporation's viability, even in the face of insolvency." However, the judge went on to add that his decision was "not an endorsement of any of the defendants' actions...The defendants oversaw the ruin of a once highly successful company, only to hide behind the protective skirt of Delaware law, which the court is bound to apply."

No word yet on any appeal. Coverage in Business Week is available here.