Chicken Soup for the Soul: Chapter 11 Converts to Chapter 7 in 12 Days

Chicken Soup for the Soul Entertainment (CSSE) entered bankruptcy in June 2024 as a hybrid media company whose business model combined ad-supported streaming brands with a legacy physical distribution channel: Redbox’s DVD-rental kiosk network. In court filings, the debtors framed the chapter 11 as a bridge to a recapitalization and asset-sale process; in practice, the case became a rapid liquidation pivot driven by a compressed liquidity runway, contested governance, and a financing structure that embedded lender protections and management constraints.

The most striking fact pattern is the speed. CSSE filed chapter 11 petitions in the District of Delaware on June 28, 2024 and converted to chapter 7 on July 10, 2024, after an interim DIP/cash collateral order entered July 4 and a status conference in which the debtors sought conversion (petition; interim DIP order; conversion order). Media coverage of the collapse emphasized the operational consequences: more than 1,000 employees caught in payroll and benefits disruptions, and the shutdown of roughly 24,000 Redbox kiosks in the wake of the conversion (Variety report; Deadline report).

For restructuring professionals, the case is valuable precisely because it is not a slow-moving plan fight. It is a clean example of how (i) a leveraged acquisition with complex secured-credit documentation can narrow options, (ii) governance disputes can become a gating issue for first-day relief, (iii) employee wages and payroll tax arrears can create reputational and legal urgency, and (iv) a lender-led interim DIP can function as both liquidity and control mechanism—sometimes to the point that a chapter 11 is effectively a short waypoint to chapter 7.

Rapid Collapse to Chapter 7: DIP Fight, Governance Crisis, and Redbox Wind-Down

The business CSSE brought into court (and why it was structurally hard to stabilize). In its first day declaration, CSSE described four operating segments: streaming services (including AVOD, TVOD, and FAST), physical media rentals via the Redbox kiosk network, content acquisition and distribution, and content production (first day declaration). It emphasized three flagship AVOD streaming services—Redbox, Crackle, and Chicken Soup for the Soul—and described Redbox Free Live TV as a FAST offering (first day declaration). The filings also emphasized “platform” scale: approximately 24,000 kiosks, approximately 40 million monthly active users for its AVOD services, and a large content library (first day declaration).

This hybrid model created a strategic tension that matters in restructuring. A pure streaming business can, in principle, cut content spend, renegotiate distribution, and right-size headcount while maintaining an always-on digital storefront. A pure physical retailer can liquidate inventory and terminate leases. CSSE’s Redbox kiosk business was neither: it depended on a large installed base, vendor relationships, and physical logistics, while also facing long-term secular pressure from the consumer shift to streaming—pressure repeatedly emphasized in consumer coverage of the Redbox shutdown (Deseret News report). That does not make a restructuring impossible, but it makes it liquidity sensitive: when cash tightens, a company that must keep both digital operations and physical footprint functioning can lose operational optionality quickly.

How the Redbox acquisition reshaped the balance sheet and amplified timing risk. A large part of CSSE’s bankruptcy narrative is inseparable from the Redbox acquisition. In May 2022, reporting described CSSE’s acquisition of Redbox at a value of roughly $375 million, structured as stock plus assumption of significant Redbox debt, with the deal framed as a way to accelerate a streaming strategy using Redbox’s 40 million-customer loyalty base and kiosk footprint (TechCrunch report; GlobeNewswire announcement). The post-filing record, by contrast, looked like an acquisition whose assumed debt became a central constraint once operating cash flows and lender cooperation deteriorated.

Court filings described a secured facility in which CSSE and Redbox were borrowers and HPS served as administrative and collateral agent, including a term loan described at approximately $357.5 million and a revolving facility of up to $80 million (with maturity dates that placed near-term focus on the revolver) (first day declaration). The declaration also described HPS’s asserted principal due as of April 29, 2024: $500,876,623.42 in outstanding principal, plus interest, fees, and expenses (first day declaration). This described debt picture helps explain why a third-party DIP proposal could become a flashpoint: if the first-lien collateral base is already heavily encumbered and the debt is asserted to exceed value, a priming DIP faces a steep adequate-protection burden and will almost always be litigated aggressively.

Filing narrative vs. lender narrative: a dispute over “blocked financing” becomes a gatekeeper issue. CSSE’s first day declaration framed the chapter 11 as driven by a liquidity collapse that management attributed to lender conduct. Management asserted that the debtors needed an additional working-capital loan (described as up to $40 million, secured by a first lien on accounts receivable) and that a private lender offered a facility that was not approved by the prepetition agent, creating knock-on effects with vendors and service providers (first day declaration). This narrative is common in distressed situations: management claims an achievable financing was blocked; lenders claim the proposed financing would have impaired collateral or violated covenants; both sides position themselves for control in court.

HPS’s objection posture framed the opposite: it challenged the debtors’ priming/cash-collateral requests, criticized valuation assertions, and argued that governance issues undermined the legitimacy of first-day relief requested by the debtors’ leadership (HPS omnibus objection). That governance overlay matters because it can convert what would otherwise be a narrow financing dispute into a broader fight over who has authority to speak for the debtors in chapter 11.

The wages, benefits, and payroll tax crisis: quantified arrears that narrowed the court’s practical options. A major accelerant toward conversion was the employee payroll and benefits crisis. Media reporting described employees going unpaid and benefits being disrupted in the weeks leading into the filing, and court hearings captured the judge’s concern about employees not being paid for work already performed (Variety report; Hollywood Reporter coverage). The docket adds quantified detail that is essential for a professional reconstruction of events.

The wage-and-benefits motion sought interim authority to pay and continue compensation and benefits programs, and it provided a cap schedule totaling approximately $9.42 million across wage payments, benefits, payroll processing fees, and related items (wages motion). The motion stated accrued but unpaid employee wages of approximately $3.52 million and described a workforce of approximately 836 full-time and 197 part-time employees as of the petition date (wages motion). It also described a payroll tax/withholding overhang: the debtors estimated approximately $15.5 million in accrued but unpaid withholding obligations from October 1, 2023 through June 7, 2024, while seeking authority to pay a more limited subset accrued from June 8, 2024 (wages motion).

The interim wage order entered on July 2 authorized honoring prepetition wages and benefits subject to statutory priority caps and authorized continuation of postpetition compensation and benefits in the ordinary course, while expressly not authorizing bonus or severance payments (interim wage order). From a restructuring-professional perspective, these mechanics underscore why the case became “exigent”: once payroll is missed and withholding obligations are described as significantly unpaid, the case becomes not only a restructuring of funded debt but also a crisis of trust and compliance that invites aggressive creditor action and rapid judicial intervention.

The financing fork: Owlpoint’s proposed DIP vs. the lender-led interim DIP that the court entered. The docket shows a rapid pivot from a third-party DIP to a lender-led interim DIP. The initial DIP/cash collateral motion sought approval of a DIP facility proposed by Owlpoint IP Opportunities JVF I LP, with $20 million total and $10 million sought on an interim basis, subject to an accordion (DIP motion). The pricing and economics were aggressive: 3-month SOFR with a 4% floor plus an 11% margin, a 4% default-rate increase, and a “minimum return” concept defined as the greater of 1.30x cash-on-cash MOIC or 20% IRR for voluntary prepayment, with the motion also describing mandatory prepayment triggers subject to the minimum return (DIP motion).

If you strip away the legal labels, the Owlpoint proposal looked like an opportunistic “rescue” facility priced for a distressed, potentially short-duration loan with high minimum economics, possibly to compensate for the risk that the case would convert or liquidate quickly. That structure may be economically rational for a lender, but it is often a litigation magnet in court because it can be framed as value extraction at the expense of other creditors in a case already short on runway.

The interim order the court ultimately entered on July 4 approved a different structure: a lender-led revolving DIP facility capped at $8 million on an interim basis, with pricing structured as base rate (minimum 1.0%) plus 9.0% or SOFR (minimum 1.0%) plus 10.0%, with an additional 2.0% default add-on during an event of default (interim DIP order). The term sheet in the interim DIP order also described a 3.0% closing fee payable in kind and a 1.0% undrawn fee payable in cash monthly in arrears (interim DIP order). The shift from a $20 million proposed facility to an $8 million interim cap is a tell: the case’s liquidity runway was not expanding; it was being narrowed and controlled.

Media reporting captured this as a control fight as well as a financing matter, describing how HPS battled over governance and agreed to arrange an $8 million DIP loan (Bloomberg report; Transacted analysis). That characterization aligns with the docket’s structure: the interim DIP order not only provided liquidity; it constrained litigation options and embedded governance conditions.

The interim DIP order’s “control terms”: carve-outs, challenge period limits, and investigation caps. The interim DIP order’s economic terms mattered, but the structural protections mattered more for case trajectory. The order’s carve-out definition included court and U.S. Trustee fees and contemplated trustee fees up to $50,000, plus professional fees with a post-trigger cap of $200,000 as described in the term sheet excerpt reviewed (interim DIP order). Carve-outs are standard; what is notable is how the carve-out and related provisions were paired with challenge and investigation constraints that limited litigation optionality in a case already on a short leash.

The order established a 75-day challenge period for parties in interest to challenge the amount, validity, perfection, enforceability, priority, or extent of the prepetition secured obligations and liens, and to assert avoidance actions or other claims against the prepetition secured parties, with an extension mechanic for a chapter 7 trustee to the later of 75 days after entry or 30 days after appointment if appointed before the challenge period expired (interim DIP order). It also capped committee investigation use of DIP proceeds and cash collateral to investigate claims against the prepetition secured parties at $25,000 (interim DIP order).

These constraints are not unusual in principle; they are common in lender-led DIP orders. But in a case that later converted to chapter 7 in 12 days, they become highly consequential because they shape the trustee’s litigation runway and the practical ability to investigate “what happened” before conversion—an issue the judge referenced in the conversion hearing as employees and stakeholders questioned where withheld amounts went (Deadline report).

Budget and variance covenants: how “runway” becomes a weekly reporting exercise. The interim DIP order also described budget mechanics and variance monitoring that conditioned liquidity on compliance with a weekly projection regime. The “Budget” was defined as a 13-week projection of anticipated cash receipts and disbursements, updated weekly, with approvals required by the DIP administrative agent, and with a 10% “permitted deviation” concept (interim DIP order). The debtors were required to provide weekly reporting and explanations of material variances, and off-budget expenditures could constitute events of default (interim DIP order). In a normal chapter 11, these provisions are governance scaffolding; in an ultra-short case, they serve as an on/off switch that can hasten conversion if the company cannot stay within the budget guardrails.

Governance embedded in the DIP: SRC reinstatement and a CEO resignation condition. One of the most important “gap-fill” details from the docket is that governance changes were written into the interim DIP order as conditions precedent to the interim facility. The order described reinstatement of a Strategic Review Committee (SRC) consisting of Bart M. Schwartz, John T. Young, Jr., and Robert H. Warshauer and empowered the SRC to manage the debtors’ affairs subject to lender acceptability, while also requiring that Bart Schwartz resign as CEO and be replaced by a successor selected by the SRC and reasonably satisfactory to the DIP administrative agent (interim DIP order).

This is the kind of detail that helps reconcile seemingly inconsistent public narratives. Media coverage described the company installing a new CEO and board in early July as part of the bankruptcy control fight (The Wrap report; Bloomberg report). The interim DIP order then reflected lender-side insistence on a specific governance architecture and further management change as a condition for funding and cash collateral access (interim DIP order). For restructuring professionals, the takeaway is simple: in lender-led financings, “who runs the company” can become as important as “what the interest rate is,” especially when a lender believes prior governance failures contributed to the liquidity collapse.

The lender objections: priming, valuation, and first-day motion control. HPS’s omnibus objection to first-day relief is a useful road map of what drove the case toward a lender-controlled outcome. HPS objected to the debtors’ priming requests and use of cash collateral, disputed the debtors’ characterization of lender consent, argued the debtors failed to satisfy the evidentiary burden for a priming DIP and adequate protection, and attacked valuation and “equity cushion” assertions (HPS omnibus objection). It also objected to first-day motions for cash management and management services fees, framing these as potential insider-payment channels given HPS’s allegations about management conduct (HPS omnibus objection).

The case’s lesson is that in a deeply distressed profile, the presence of a third-party DIP offer does not guarantee a viable restructuring runway. If the senior secured lender believes (i) the DIP economics are extractive, (ii) the collateral is insufficient to support priming, and (iii) management lacks legitimacy or has breached governance agreements, then the first week of a chapter 11 can become a fight over governance and the right to control cash rather than a fight over the plan path.

The governance motion: allegations about director removals, payroll failures, and voting-control mechanics. HPS’s governance motion sought, in the alternative, reconstitution of the debtors’ boards and strategic review committees, appointment of a chapter 11 trustee, or conversion to chapter 7 (HPS governance motion). The motion alleged that William Rouhana terminated directors and the SRC shortly before the filing, that the company failed to make payroll for over 1,000 employees and that medical benefits were terminated, and that payroll taxes exceeding $15 million were unpaid (HPS governance motion). The motion also described an irrevocable proxy/voting-control framework tied to a forbearance arrangement, arguing that Rouhana had delegated voting power to the agent and therefore lacked authority to remove independent directors (HPS governance motion).

It is critical to keep attribution clean here. These were allegations made in a governance motion in a contested first-week case. But they matter for two reasons. First, they are consistent with the employee wage-and-benefit crisis described in the wages motion itself—where the debtors quantified withholding arrears and sought authority to stabilize payroll mechanics (wages motion). Second, they help explain why conversion was so fast: when secured lenders frame a case as both insolvent and mismanaged, and when the court is confronted with unpaid employees and disputed control, liquidation becomes a plausible “least-worst” option if financing cannot support a going-concern path.

Cash collateral edge case: the Cedar Advance receivables dispute. The Cedar Advance preliminary objection illustrates how perimeter disputes over “what is cash collateral” can become urgent in a liquidity collapse. Cedar asserted its transaction was a true sale of receivables under a merchant cash advance agreement, making the purchased receivables not property of the estate and therefore not usable as cash collateral; it sought denial of use or restrictions tied to a specified-percentage mechanism and turnover of collections (Cedar Advance objection). Even if such a dispute is ultimately resolved through litigation or settlement, the short-term impact is often immediate: it narrows the debtor’s available cash sources and increases administrative complexity at exactly the moment the debtor needs simplicity.

Claims agent and notice infrastructure: why it matters even in a 12-day chapter 11. Even in a case that converts quickly, the administrative infrastructure matters because it shapes who receives notices, how proofs of claim are maintained, and how the chapter 7 trustee inherits records. The debtors’ claims-agent application sought approval to retain Kroll Restructuring Administration LLC as claims and noticing agent effective as of the petition date, authorized a $50,000 advance as security for fees/expenses, and described Kroll’s functions including maintaining the claims register and managing notices and proofs of claim (claims agent application). The practical reason to highlight this is not procedural trivia; it is that the chapter 7 trustee’s ability to investigate and administer claims depends on a clean transition of records—an issue explicitly referenced in the conversion order’s turnover provisions (conversion order).

Conversion to chapter 7: what the conversion order required and what it signaled. On July 10, 2024, the debtors made an oral motion to convert at a status conference, and the court entered an order converting the jointly administered cases to chapter 7 effective as of that date (certification re conversion; conversion order). The conversion order required immediate turnover of estate records and property to the chapter 7 trustee, a postpetition debt schedule within 14 days, and a final report/account to the U.S. Trustee within 30 days (conversion order). Importantly, the order also included employee-payment-assurance language: it did not require any employee to provide services without assurance of payment (conversion order).

That language is rare enough to be meaningful. It reflects the human and legal reality of the case: when a debtor has missed payroll and benefits, the court is not merely managing a capital structure; it is managing a workplace crisis. Media coverage of the conversion hearing highlighted the judge’s blunt view that the company was “hopelessly insolvent” and the immediate impact on workers and vendors (Deadline report; Variety report).

Operational aftermath: kiosks shut down, layoffs, and litigation risk. After conversion, coverage described the shutdown of approximately 24,000 Redbox kiosks and layoffs affecting over 1,000 employees, with no severance or extended benefits described in reporting (Variety report; Deseret News report). Reporting also described allegations of financial mismanagement and the likelihood that a chapter 7 trustee would investigate potential misuse of funds or failures to remit withheld amounts (Hollywood Reporter coverage; Deadline report). Former employees also filed litigation asserting severe misconduct, including claims related to benefits and payroll handling, which underscores the non-bankruptcy risk profile that can follow a rapid operational collapse (Deadline lawsuit report).

The takeaway for restructuring professionals is that a 12-day chapter 11 does not mean “nothing happened.” A short case can still embed legally significant decisions about financing priorities, governance authority, challenge periods, and record turnover that shape the next phase under chapter 7. It can also trigger a long tail of litigation risk—employment, tax, fiduciary duty, and lender-liability disputes—that remains “alive” well after the bankruptcy has converted and the consumer-facing operations have shut down.

Timeline: the sequence that produced a 12-day conversion. The table below consolidates the key inflection points from prepetition history through conversion. It intentionally pairs public reporting with the docket’s hard dates because early press coverage sometimes uses different shorthand for “filed” dates; the petition date and conversion order date in the court record are the controlling anchors (petition; conversion order).

Frequently Asked Questions

When did Chicken Soup for the Soul Entertainment file for chapter 11 bankruptcy?

The debtors filed chapter 11 petitions on June 28, 2024 in the District of Delaware (petition; Variety report).

Why did the case convert to chapter 7 so quickly?

The docket reflects a rapid deterioration in the feasibility of a chapter 11 runway: a contested first-week governance fight, disputes over DIP and cash collateral terms, and an acute payroll/withholding crisis described in the wages motion. The court entered an interim DIP/cash collateral order on July 4 and then converted the cases to chapter 7 on July 10 (interim DIP order; wages motion; conversion order).

What businesses did CSSE operate at the time of filing?

Court filings described a platform spanning streaming services (including AVOD/TVOD/FAST), physical media rentals via Redbox kiosks, and content acquisition/distribution and production through subsidiaries including Screen Media and related studios (first day declaration; Deadline profile).

How many Redbox kiosks and users did CSSE describe in its filings?

The first day declaration described approximately 24,000 kiosks and approximately 40 million monthly active users for its AVOD services (first day declaration). Reporting later described the shutdown of roughly 24,000 kiosks after conversion (Variety report).

Who were the key secured lenders and what did the secured facility look like at a high level?

The first day declaration described a secured facility with HPS Investment Partners, LLC as administrative and collateral agent, including a term loan described at approximately $357.5 million and a revolver of up to $80 million, and it described HPS asserting $500.876 million of principal due as of April 29, 2024 (plus interest/fees/expenses) (first day declaration). Public reporting also described HPS as the lender group that won a control fight early in the case (Bloomberg report).

What DIP financing was proposed, and what DIP/cash collateral relief was actually approved?

The initial DIP motion sought approval of an Owlpoint DIP facility of $20 million total with $10 million requested on an interim basis, with pricing tied to SOFR plus a large margin and a minimum-return concept (1.30x MOIC / 20% IRR) (DIP motion). The court’s interim order approved a different structure: an $8 million interim revolving DIP facility and cash collateral use with specified pricing, fees, and protective terms (interim DIP order).

What did the interim DIP order’s “challenge period” and investigation cap do?

The interim order set a 75-day period to bring challenges to the prepetition secured obligations and liens and related claims, with an extension mechanic for a chapter 7 trustee if appointed before expiration, and it capped committee investigation funding against the prepetition secured parties at $25,000 (interim DIP order).

What wage and payroll tax issues were described in the chapter 11 filings?

The wages motion sought interim authority to pay wages and benefits subject to caps and described accrued unpaid wages and significant withholding obligations, including an estimated $15.5 million of accrued but unpaid withholding obligations over a multi-month period (with more limited interim authority sought for a subset) (wages motion). Reporting described employees being unpaid and benefits disruptions in the weeks surrounding the filing and conversion (Hollywood Reporter coverage; Variety report).

What did the conversion order require the debtors to do?

The conversion order required immediate turnover of records and estate property to the chapter 7 trustee, a postpetition debt schedule within 14 days, and a final report/account to the U.S. Trustee within 30 days, and it included language that no employee would be required to provide services without assurance of payment (conversion order).

Who is the claims agent for Chicken Soup for the Soul Entertainment?

Kroll Restructuring Administration LLC serves as the claims and noticing agent. The firm maintains the claims register and handles noticing and proof-of-claim administration for the cases (claims agent application).

Read more bankruptcy case research on the ElevenFlo blog.