Unable to pay off its debts, Frankfurt, Germany-based publisher CDV Software said Tuesday that it has filed for insolvency.
CDV’s executive board warned the Frankfurt bankruptcy court earlier in the week that it may file for insolvency due to illiquidity, or the inability to readily convert its assets into cash.
In a separate announcement, CDV said Tuesday that Virginia-based game company and former business partner SouthPeak filed a €4.4 million ($6 million) repayment claim against CDV, which further strains CDV's financial position.
The debt CDV reportedly owes to SouthPeak winds its way back to an April 6 regulatory filing, in which SouthPeak said it entered into a purchase agreement with obscure game maker -- and CDV creditor -- IRP GmbH. The agreement, in which SouthPeak purchased all of the outstanding stock of IRP, a German company, was signed on March 31. SouthPeak signed the purchase agreement with IRP affiliates Intermezzo Establishment and Paragon Investment Fund.
SouthPeak acquired from IRP exclusive distribution, publishing and IP rights for Intermezzo games. SouthPeak also gained the rights to any Intermezzo titles "obtained from CDV Software Entertainment AG and its affiliates."
Along with those video game contract rights, SouthPeak also acquired a repayment claim that Intermezzo held against CDV for €3.7 million ($5.1 million) plus interest accrued after the March 31 acquisition. According to the regulatory filing the repayment claim is just part of a larger claim held by Intermezzo against CDV amounting to the €4.4 million total.
It's unclear how exactly the little-known IRP holds such a substantial claim against CDV. SouthPeak and CDV did not respond to our inquiries as of press time.
SouthPeak purchased IRP GmbH in exchange for 10 million shares priced at $0.0001 ($1,000) and $1.2 million in cash paid over the next eight months, as well as payment of 10 percent of the net receipts of from sales of IRP's video game.
SouthPeak's regulatory filing said that IRP's sole asset is a video game contract, which is not specified.
London-based lawyer Jas Purewal from the Gamer/Law blog
, told Gamasutra that he believes SouthPeak's acquisition of IRP and CDV's insolvency may possibly be linked. "Under the laws of most jurisdictions, an unsatisfied claim for repayment of a debt can be grounds for putting the debtor company into insolvency proceedings," he said.
CDV and SouthPeak have been embroiled in a legal dispute that began when CDV sued SouthPeak in March 2009 for over $5 million, seeking repayment of video game development advances and damages related to a contract with SouthPeak subsidiary Gamecock. The most recent development in that case saw a judge rule in favor
of CDV in February this year, finding that SouthPeak infringed on CDV copyrights, with CDV eligible for a monetary reward. A judge didn't specify the exact amount at the time.
CDV said in its Tuesday announcement about SouthPeak's repayment claim that the money SouthPeak owes the publisher should be subtracted from SouthPeak's €4.4 million claim amount.
SouthPeak has been hit with a number of lawsuits in recent years. Most recently, SouthPeak and former distribution partner Paradox settled
after Paradox sued SouthPeak for nearly $600,000 in outstanding payments.
Purewal said, "There also remains a possible question mark over the solvency of Southpeak
itself, given the recent litigation threatened by Paradox against it over unpaid amounts (which Southpeak then settled fairly quickly)."
He added, "On the other hand, if SouthPeak had sufficient funds to pay for the IRP acquisition at the end of last month, perhaps its financial condition is better than previously thought."