MOVIE STUDIO MGM has proposed to file for bankruptcy in order to clear the $4bn (€2.88bn) in debt that is wrecking any chances it has of investing in future films.

The studio has filed for Chapter 11 protection in the United States, meaning it can continue to trade while the proceedings are underway.

When the studio – best known for the ‘roaring lion’ used as its logo at the start of its films – emerges from the protection, it hopes to exchange the €4bn in loans for a 95.3% stake in the firm to be given to its debtors in what is known as a ‘pre-packed bankruptcy’.

The studio has struggled to raise financing for new films since it was taken over a $2.85bn (€2.05bn) deal by a consortium including media companies Sony and Comcast in 2005.

The company will be run by the founders of Spyglass Entertainment, the film and TV production company, after the debt-for-equity swap is complete.

Creditors will be asked to vote on the deal before October 22, with the studio hoping to complete proceedings as soon as possible afterward in order to pave the way for future releases.

The restructuring would pave the way for Peter Jackon’s production of ‘The Hobbit’, the two-part prequel to the ‘Lord of the Rings’ trilogy, which is still awaiting an official approval before filming can begin early next year before release in December 2012.

Sky News quotes one film industry expert that the restructure is good news for fans of the James Bond series, also produced by MGM, which is also slated for release in 2012.