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'Thomas & Friends' animation studio Arc Productions faces 'financial emergency' in Toronto

TORONTO – The Canadian animation studio behind “Thomas & Friends” and the Elton John-produced film “Gnomeo & Juliet” has locked out its staff as it turns to the courts to deal with a “financial emergency.”

Arc Productions, once considered one of the rising stars of the country’s animated film industry, had a letter posted outside its downtown Toronto headquarters on Tuesday saying the company was facing “significant financial difficulties and a liquidity crisis.”

Chief executive Tom Murray told staff in the letter that Arc’s lenders went to court last week to request a court-appointed monitor to oversee control of the business.

The move pushed the company into receivership under the Bankruptcy and Insolvency Act.

Since then, Deloitte’s Canadian restructuring division has been appointed to oversee Arc’s finances, says Deloitte spokeswoman Emily Richardson, and it will seek a permanent appointment to that role in a court appearance slated for Thursday.

Richardson added that Arc Productions has not filed for bankruptcy.

The financial troubles come seven years after Arc — then known as the Starz Animation Studio — received funding from the provincial government to grow its business.

Dalton McGuinty committed to giving the animation studio $23 million as part of the Next Generation of Jobs Fund in 2009, though the amount was eventually lowered to $16.3 million, says Jessica Hume, a spokesperson for Economic Development Minister Brad Duguid.

At that point the studio had already produced hit children’s programs like “VeggieTales” and modest box-office successes including “9” and “Everyone’s Hero.”

In the years afterward, the company would be renamed to Arc Productions with the U.S. cable channel Starz still holding a minority stake in the business.

Arc continued to take on bigger projects under the Marvel and Lego banners with films such as “Dolphin Tale” and “Hoodwinked Too! Hood vs. Evil.” It still has a number of projects set for future release, including “Tarzan and Jane” for Netflix.

“On a personal level, I want you to know how proud I have been to work with all of you and how much I have appreciated your commitment to our clients and loyalty to the company,” Murray wrote in the letter.

“I am so sorry that, in spite of all of the efforts, I have been unable to resolve this crisis and apologize for that failure.”

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Note to readers: This is a corrected story. A previous version stated Arc Productions has filed for bankruptcy.