UPDATE 1-'Twilight' studio to Blockbuster: Pay or liquidate
* "Twilight" studio demanding payment
* Blockbuster told studio it has no money (Adds comment from Blockbuster in paragraphs 3-4, share prices in paragraph 14)
By Tom Hals
WILMINGTON, Del., Feb 4 (Reuters) - The independent studio behind the hit "Twilight" films wants a judge to force bankrupt movie rental chain Blockbuster Inc to pay its bills or force it to into liquidation, according to court documents.
Blockbuster BLOAQ.PK told Summit Distribution LLC that it would not pay $6.8 million it owed for DVDs shipped since it filed for Chapter 11 bankruptcy in September because it did not have the money, according to documents filed with a U.S. bankruptcy court in Manhattan on Thursday.
Blockbuster said in a statement it was reviewing Summit's request.
"We continue to work diligently with the studios, our lender group and other key parties to achieve an outcome in the recapitalization process that is in the best interest of the company's stakeholders, including customers, vendors and employees," Blockbuster said.
Bankruptcy gives companies breathing space to reorganize their debts in part by ensuring suppliers will be among the first paid.
If the company were to be forced into a Chapter 7 liquidation, a trustee would likely replace the management and Blockbuster could be forced to sell or close all of its operations to pay off its debts.
Blockbuster representatives spoke with Summit's management on a Jan. 28 conference call about unpaid bills for DVDs including the "The Twilight Saga: Eclipse," which was Summit's second-most popular DVD and No. 4 among all studios last year.
"To Summit's surprise and dismay, the debtors informed Summit that the debtors would not pay Summit with respect to products that were shipped post-petition (after the bankruptcy filing) because the debtors lacked the funds to do so," said a court document.
Summit's president, Stephen Nickerson, said in a court document that Blockbuster will take in $8.3 million alone from the "Eclipse" DVD and he called the unpaid bills a "significant hardship" for the small studio.
Blockbuster filed for bankruptcy in September, weighed down by its debts and stung by video-on-demand and competitors such as mail-order pioneer Netflix Inc (NFLX.O) and Redbox Inc, a Coinstar Inc CSTR.O unit that rents movies through kiosks.
Blockbuster, the largest video rental chain, has been working on a business plan that includes closing many of its nearly 3,000 U.S. stores and developing its online, mail and kiosk business. The plan would put billionaire Carl Icahn, once a significant shareholder, in control of the company.
Blockbuster obtained a $125 million loan from Icahn and a group of hedge funds to provide money to keep operations afloat during its Chapter 11.
The company faces a Friday deadline imposed by the Icahn group for its business plan, although the deadline could be extended.
Shares of Blockbuster were down about 3 percent in late pink sheet trading at 10.2 cents.
The case is In re: 10-14997, U.S. Bankruptcy Court, Southern District of New York. (Reporting by Tom Hals; Editing by Steve Orlofsky, Bernard Orr)