Planet Hollywood's star cash error

Bruce Willis and Demi Moore were among the backers

Troubled restaurant chain Planet Hollywood wrote off $5m (£3.2m) of loans to celebrities because its founders were more worried about being friends with the stars than the company's financial problems, a report has said.

The high-profile themed restaurant became a worldwide chain after being launched with backing from stars like Arnold Schwarzenegger, Bruce Willis, Demi Moore and Sylvester Stallone.

Founder Robert Earl (left) also enlisted Sylvester Stallone

But its founders, Robert Earl and Keith Barrish, have been criticised for their links with stars as their company tries to escape bankruptcy, owing $20m (£13m) to unsecured creditors.

The independent report does not reveal which celebrities had benefited from the loans.

It was commissioned by a United States bankruptcy court at the request of the creditors.

"It would appear that both Earl and Barrish were more concerned with preserving their personal relationships with the celebrities at the expense of the business, creditors and shareholders," the report said.

A "tangled web" of intricate deals involving the company's executives and board members also led to the company writing off fees and making uncompetitive deals, the report said.

The celebrities involved had been given shares in the chain when it went public in 1996.

Friends

But those who wanted to cash in the shares were instead offered loans backed by the stock to avoid the embarrassment of having the big names remove their support.

The chain trades on its famous patrons giving it a kudos that appeals to film fans, and trying to recover the loans would have been a bad business decision, Planet Hollywood's bankruptcy lawyer Scott Shuker said.

"You're trying to keep these people happy at a time the company isn't performing. When you start suing their friends, it's not a good idea," he said.

They also did not reclaim the funds because the loans were backed by stock that had become worthless, and were written off when the firm filed for bankruptcy.

"We didn't have the opportunity to recover them," Earl said.

The report also said: "The interrelation of the companies and senior management is intricate and convoluted which leads to potential insider conflicts."

Earl said there was nothing wrong with the ownership structure.

At the end of 2001, there were just 13 Planet Hollywood outlets around the world, down from 95 three years earlier.