Atari Tries to Win Extra Life

Atari has entered bankruptcy in the United States. The move is designed to legally separate the company from its financially troubled parent and allow the US operation to remain in business.

The US company — Atari SA — hasn’t filed the more severe Chapter 7 bankruptcy in which the company ceases trading and is liquidated. Instead it’s opted for Chapter 11, which gives it temporary protection from creditor claims to give it time to financially reorganize.

The company has two months to propose a reorganization plan which will go to a vote of creditors to decide whether to accept. Such plans could mean paying only a portion of the outstanding debts or being allowed longer to repay.

Atari SA is expecting a “significant loss” in the final figures for its recently-ended financial year and a credit agreement with its main shareholder ended on December 31. The company is now looking for new investment and the bankruptcy move appears to be a way to allow it to break legal links with its parent company in France which is also in financial difficulties. The theory is that US investors might be more willing to put cash in if they can be certain they won’t be affected by the French firm’s performance.

Despite its problems, the US arm of the business is outperforming its foreign counterparts. That’s been credited to putting more effort into digital products and licensing rather than sales in physical stores. In particular it has found success in relaunching classic arcade and console games as tablet applications.

Exactly how grim Atari SA’s financial picture is remains unclear. In its bankruptcy filing it listed its assets as between $1 million and $10 million, and its debts as between $10 million to $50 million. It wants court approval to take just over $5 million in lending through a special measure known as “debtor-in-possession.” This means that such a loan, made by a specialist company, would take priority over existing debts.