A bankruptcy judge on Friday delivered a defeat to Netflix Inc., which has fought for the right to release two films produced by Relativity Media LLC on its streaming platform ahead of their expected theatrical release.

Judge Michael Wiles of the U.S. Bankruptcy Court in Manhattan issued an order forbidding Netflix to release the films, saying a premature debut of the movies could prove "devastating" for the Hollywood studio that he released from chapter 11 earlier this year.

Relativity's fragile reorganization plan is dependent upon the theatrical release of its most anticipated films: "Masterminds," a comedy starring Zach Galifianakis and Kristen Wiig, and "The Disappointments Room," a horror film starring Kate Beckinsale.

"It is my responsibility to ensure the plan I approved is carried out," the judge said in court Friday. Allowing Netflix to proceed "would threaten the bankruptcy process…with devastating consequences to the plan and distributions" to creditors.

Earlier this month, the judge had made clear he wouldn't allow a premature release of the films. Friday's ruling makes his decision official.

Lawyers for Netflix say they plan to pursue an appeal. Netflix had also proposed having the dispute settled in arbitration rather than bankruptcy court, which Judge Wiles flatly rejected.

Relativity filed for bankruptcy last summer, carrying more than $1 billion in debt. The company's reorganization plan, which won final court approval in March, calls for the two films to be rolled out in theaters in September and December and later released abroad and on streaming services. The theatrical debut, the company says, is critical to repaying loans it took out to produce and market the films.

Judge Wiles on Friday chided Netflix for failing to raise the potential for conflicts over the release timeline during the final hearing on the reorganization plan, which focused on projected revenue from the films' theatrical release to help demonstrate the plan's financial viability.

"Netflix had an obligation to raise these points," he said. "This could not have been clearer."

The judge also made it clear he thought Netflix was threatening to release the films to gain leverage in a long-standing dispute between the two companies. Netflix was a vocal opponent of Relativity's reorganization throughout the bankruptcy, hitting it with objections that questioned its feasibility. But those objections were either dropped or overruled, leaving Netflix stuck with a contract that obligates it to buy as many as 15 films a year from Relativity.

"Netflix waited so that it could interfere with implementation of these arrangements to have leverage to terminate the contract," the judge said.

Court papers show Netflix has paid Relativity at least $283 million in licensing fees since 2010 for exclusive rights to offer Relativity's films on its video-streaming service.

Relativity's restructuring cut its initial $1.2 billion debt load down to about $314 million, giving the studio a chance to get back on its feet. Court papers show Relativity hopes to release as many as 22 films over the next three years, which it hopes will bring in as much as $2 billion.

Write to Tom Corrigan at tom.corrigan@wsj.com

(END) Dow Jones Newswires

May 27, 2016 15:55 ET (19:55 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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