4Kids files for Chapter 11

US children’s TV distributor 4Kids Entertainment has filed for Chapter 11 bankruptcy protection after failing to reach an agreement with its Japanese partners over the Yu-Gi-Oh! franchise.

The filing covers all of 4Kids’ wholly owned domestic assets but does not include 4Kid’s UK subsidiary 4Kids Entertainment International. The firm also made a number of first-day motions this week to stay operational.

“We want to assure our clients, business partners and licensees that during the pendency of the bankruptcy, 4Kids will continue to provide the same level of service and dedication that it has in the past,” said Michael Goldstein, interim chairman of 4Kids Entertainment in a filing.

“The company will also continue to explore its strategic alternatives, including, the possible sale of the business or reorganisation as a stronger and more focused company.”

Last month, 4Kids received a letter from the licensors of Yu-Gi-Oh! property Asatsu-DK (ADK) and TV Tokyo Corporation terminating their licensing agreement over the popular Japanimation toon. The pair filed a lawsuit on March 24 claiming US$4.7m in damages.

“We have made every effort to reach agreement with the licensors,” said Goldstein. “When the company did not receive a positive response from licensors to its settlement proposal, the board of directors was left with little choice but to authorise the filing of a bankruptcy petition under Chapter 11 in order to best preserve the business and assets of 4Kids Entertainment.”

The lawsuit accuses 4Kids of making unauthorised sales of Yu-Gi-Oh! and covering up revenues in its accounts. Goldstein reaffirmed the firm would fight the claims, and seek counter damages from ADK and TV Tokyo if successful.

The move to Chapter 11 continues what has been an increasingly tough period for 4Kids. It first announced it was looking at “strategic options” in 2009 having been severely hit by the recession and strong competition in the kids’ TV space.

It was later suspended from the New York Stock Exchange and moved to the OTC Bulletin Board and also lost the rights to the Teenage Mutant Ninja Turtles franchise, which were acquired by Nickelodeon.

Then in January this year, the firm’s CEO of 25 years, Alfred Khan, stood down. 4Kids went on to post a 57% drop in annual revenue for 2010, equating to a fall of US$19.7m year-on-year, and net losses of US$27.2m.