Merit Street Media Moves to Chapter 7, Trustee Appointed

A federal bankruptcy judge on Tuesday ordered that Merit Street Media, the shortlived television venture co-founded by television host Phil McGraw, be converted from Chapter 11 reorganization to Chapter 7 liquidation, saying a trustee should oversee the sale of the companys assets to protect creditors. The ruling came in the U.S. Bankruptcy Court for the Northern District of Texas after a trial over whether the Chapter 11 filing was legitimate and whether McGraw and his affiliates had acted to shield assets and favor certain creditors.

Judge Scott W. Everett said conversion to Chapter 7 was in the best interests of creditors because an independent trustee could conduct an impartial sale of Merit Streets remaining assets, including its media library. He rejected dismissal of the Chapter 11 case and the appointment of an examiner or a Chapter 11 trustee as less likely to produce a fair outcome. In his bench ruling the judge warned that dismissal could allow the debtor to pay favored creditors and to refile in another jurisdiction for more favorable rulings.

The court record includes allegations that McGraw and his production company, Peteski Productions, formed a new company,...