Chicken Soup for the Soul Entertainment, which owns movie rental company Redbox and the streaming service Crackle, has entered bankruptcy on rocky footing, with its lenders moving on Monday to wrest control from the company's chief executive.

The company filed for bankruptcy protection in Wilmington, Delaware late Friday, intending to fund its restructuring with a $20 million bankruptcy loan from private credit firm Owlpoint Capital. But private investment firm HPS Investment Partners, which is owed $500 million, quickly moved to block the new loan and wrest control of the company from CEO William Rouhana.

Chicken Soup for the Soul Entertainment (CSSE) has a diverse line of businesses that includes its namesake series of self-help books, ad-supported streaming services, pet food, and Redbox, known for its bright red self-service DVD rental kiosks at supermarkets and other retail centers. The company estimated that it had $970 million in total debt and $414 million in total assets in its bankruptcy petition.

It initially blamed HPS for its bankruptcy in court filings over the weekend, saying that the lender had prevented Redbox from taking on a new $40 million loan that would have allowed it to buy the rights to new releases for its rental kiosks and streaming platforms. Choked off by the HPS loan that CSSE used to acquire Redbox in 2022, the company was "unable to pay for all the movies that were offered by their providers," a situation that "materially diminished the content available across the debtors' distribution platforms."

HPS quickly fired back in court papers, saying that Rouhana's "gross mismanagement and self-dealing" had driven the company to a $636.6 million net loss in 2023. HPS has little hope of being repaid the $500 million it is owed, and it said that Rouhana's initial bankruptcy court filings were "not only half-baked, but shocking in their lies," according to HPS's court filings.

CSSE did not immediately respond to a request for comment.

HPS said Rouhana has "enriched himself" at the expense of company lenders and employees, who have not been paid for the past 10 days. HPS said Rouhana and entities he controls have been paid over $27 million in management fees from CSSE since 2022.

HPS asked U.S. Bankruptcy Judge Thomas Horan at CSSE's first bankruptcy court hearing on Monday to appoint a Chapter 11 trustee to take over the company's operations, and to re-appoint all CSSE board directors that Rouhana fired before the bankruptcy.

Horan said he was "highly reluctant" to make any immediate rulings, given the depth of the lender dispute.

CSSE's attorney Michael Cooley told Horan that he would speak with HPS and other lenders in an effort to get agreement on initial funding that would be used to pay employees. The company has over 1,000 employees, according to its court filings.

(Reporting by Dietrich Knauth; Editing by Alexia Garamfalvi)