July 2 (Reuters) - Chicken Soup for the Soul

Entertainment's ( CSSE ) former chief executive declined to testify about

his company's failure to pay employees before filing for

bankruptcy, saying he was concerned about potential criminal

liability, his attorneys said at a Tuesday court hearing.

The company, which owns DVD rental service Redbox and online

streaming services including Crackle, filed for bankruptcy in

Delaware on Friday after losing $636 million in 2023.

The company's lenders, led by private investment firm HPS

Investment Partners, accused ex-CEO William Rouhana of

improperly firing the company's board, failing to make payroll

for the company's 1,000 employees, and causing employees to lose

access to their healthcare benefits.

Rouhana's attorney, Morgan Patterson, said Rouhana denied

doing anything improper, but would not testify at Tuesday's

hearing in Wilmington, citing the serious civil and potential

criminal implications of HPS' allegations.

The dispute delayed a normally routine request to borrow

additional funds and continue normal operations like paying

employees during the initial stage of the bankruptcy case.

After a round of last-minute negotiations on Tuesday, HPS

agreed to provide an $8 million loan to fund CSSE's immediate

payroll needs while negotiations continue over longer-term

funding for the company.

HPS, which is owed $500 million, had asked U.S. Bankruptcy

Judge Thomas Horan, who is presiding over CSSE's bankruptcy

case, to reconstitute the company's board of directors or place

a bankruptcy trustee in charge of the company. HPS backed off

its immediate demands after CSSE agreed to put a new board in

place and hire a new CEO.

Richard Pachulski, an attorney representing ousted CSSE

board members, supported the call for a new board of directors,

saying that Rouhana should not be allowed to "puppeteer" the

company in its bankruptcy.

CSSE's newly appointed CEO, Bart Schwartz, said that he is

not a puppet and that Rouhana was no longer calling the shots

for the company. To resolve disputes over his appointment,

Schwartz agreed to step down as CEO and join the company's new

board of directors while a new CEO is hired.

The case is In re: Chicken Soup for the Soul Entertainment ( CSSE ),

U.S. Bankruptcy Court for the District of Delaware, No.

24-11442.

For Chicken Soup for the Soul Entertainment ( CSSE ): Michael Cooley

of Reed Smith

For HPS Investment: Dennis Dunne of Milbank

For DGA, SAG-AFTRA and WGA: Susan Kaufman of the Law Office

of Susan E. Kaufman

Read more:

Redbox owner Chicken Soup for the Soul crashes into

bankruptcy