GGW LLC and its affiliates (“GGW”), which produce and distribute the soft core pornography videos known as “Girls Gone Wild”, recently filed for relief under chapter 11 of the Bankruptcy Code. The filing follows years of legal troubles for the company’s founder, Joe Francis, including criminal charges of racketeering and tax evasion, and civil litigation against Steve Wynn’s Mirage Resorts Casinos stemming from gambling debts owed by Francis. The bankruptcy filing of GGW was evidently precipitated by a slander judgment of $19 million obtained by Wynn against Francis.
The prurient nature of GGW’s business model aside, the case actually provides a cautionary tale for entrepreneurs who seek bankruptcy protection under chapter 11 in order to try to maintain control of the businesses that they have founded. Such owners are often ill-suited for the so-called “fishbowl” of chapter 11; they tend to ignore the advice they are given (or are unable to comprehend) that the filing of a petition for relief under chapter 11 both creates a distinct bankruptcy estate, and imposes substantial fiduciary obligations on company officers and directors to such estate and its creditors.
Although supposedly no longer an officer of the company at the time of the petition, Francis had clearly remained firmly in control of GGW. He likely believed that chapter 11 would provide him with respite from his legal pursuers, not grasping that the protective shield of the automatic stay under the Bankruptcy Code inheres to the benefit of the debtor entity only, and not its founder.
Far from being shielded, Francis’ legal woes are mounting. Wynn moved for the appointment of an independent trustee to oversee GGW’s chapter 11 case, which the judge granted after hearing evidence that GGW corporate assets were being used to pay substantially all of Francis’s personal expenses, including his mortgage, credit card bills and legal fees for matters not involving GGW. In opposing the motion for a trustee, GGW’s bankruptcy counsel asserted:
Francis' 'bad boy' lifestyle and image are inextricably identified with the Girls Gone Wild brand just as Hugh Hefner is identified with Playboy magazine. ... Since there are many free sources of adult entertainment available to consumers on the Internet, the principal thing that causes consumers to pay for the same adult entertainment services offered by the GGW entities is the desire by the consumer to identify with Francis and his lifestyle by being a paid subscription member of the brand he is responsible for starting[.]
Losing control of the company with which he is “inextricably identified” has evidently not sat well with Francis. The trustee has sought and obtained a restraining order against Francis, after alleging that Francis made “violent threats” against GGW employees who were not following his directions. Pending a May 8 hearing, Francis is barred from attempting to influence control over GGW or from coming within 100 feet of its premises.