'Thomas & Friends' animation studio Arc Productions files for bankruptcy in Toronto

Touchstone Pictures' 'Gnomeo and Juliet'

TORONTO -- The Canadian animation studio behind "Thomas & Friends" and the Elton John-produced film "Gnomeo & Juliet" says it has filed for bankruptcy and locked out its staff.

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 that "significant financial difficulties and a liquidity crisis" left the company's managers in a "financial emergency."

Chief executive Tom Murray told staff in the message that Arc's lenders went to court on Friday to request a court-appointed monitor to oversee control of the business.

Deloitte Restructuring Inc., is expected to take on the job of handling the company's finances, which include unpaid wages to Arc's animators and office staff. A request for comment from Deloitte was not immediately returned.

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 gave the animation studio $23 million as part of the Next Generation of Jobs Fund in 2009. At that point it had already produced hit children's programs like "VeggieTales" and modest box-office successes including "9" and "Everyone's Hero."

In the years afterwards, 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."