Dr. Phil McGraw has lost a court battle over his media startup’s bankruptcy, according to the Hollywood Reporter, amid allegations that he stripped the company to launch a new venture.
U.S. Bankruptcy Judge Scott Everett on Tuesday rejected McGraw’s attempt to keep the case in Chapter 11, which would have allowed him to maintain control of the bankruptcy process.
The case will now proceed as a Chapter 7 liquidation, with a trustee overseeing the sale of Merit Street’s assets and related litigation, according to the Hollywood Reporter.
The court’s decision highlighted evidence suggesting McGraw deleted text messages and attempted to manipulate the bankruptcy by favoring certain creditors over others.
“Candor to the court is critical,” Everett said in his bench ruling, adding that McGraw’s “business was as dead as a doornail when the bankruptcy was filed.”
A spokesperson for McGraw’s production company, Peteski, announced plans to appeal. “We take great exception to the court’s improper assertions regarding the alleged destruction of evidence, which simply did not happen,” the spokesperson said.
“We will not let this stand given all that Dr. Phil and Peteski Productions have done to protect Merit Street employees, distributors and other interested parties and to resolve this unfortunate situation.”
Central to the case were allegations that McGraw maneuvered to gain majority control of Merit Street to secure investments from family and friends at a $425 million valuation.
Based on this representation, Trinity Broadcasting increased McGraw’s stake in Merit Street through his production banner Peteski to 70% while reducing its own stake to 30%, according to the report.
Trinity Broadcasting’s lawsuit claims that after finalizing the deal, McGraw described his plan as a “gangster move” to reduce the network to nothing more than a “passive minority investor.”
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