Paradox Interactive has instigated legal proceedings against SouthPeak, claiming that the company owes it money following its insolvency.
According to legal filings published by Gamasutra, SouthPeak has failed to pay Paradox over $585k it has collected from the sale of its games - an amount which remains unpaid due to SouthPeak's "insolvency".
"SouthPeak has failed to comply with its payment obligations even for game units which it previously reported to Paradox, and SouthPeak's executives have informed Paradox's executives that SouthPeak is currently financially unable to satisfy its payment obligations to Paradox under the Agreement," reads the filing.
Paradox said that it terminated its distribution agreement with the publisher in February of this year, but that SouthPeak responded with a letter that threatened to seek the return of unsold inventory from retailers - a move that Paradox claims would cause it irreparable harm.
"There is no rational business reason for requesting such returns; it is contrary to the provisions in the Agreement for post-termination handling of product," the filing adds.
The company has requested that the court prevents SouthPeak from carrying out the step so that it can deal with the unsold games itself.
In a response, SouthPeak said that it is in discussions with its legal counsel but will continue to work with both existing and current partners.
"As one of the fastest growing video game publishers in North America, we value our partnering agreements and are currently in discussions with our legal counsel to pursue the appropriate resolution to this matter. We look forward to continuing our prosperous relationships with our current and new partners in order to bring new, original games to market," it said in a statement issued to GamesIndustry.biz.
SouthPeak reported a $2.6m loss in the second quarter of fiscal 2009 - a loss that was exasperated by $3.1m it was forced to pay German publisher CDV when a court decided it had breached a contact held between the two companies.
In February, the publisher extended its credit line to November 30, 2010, increasing its credit facility to $8m.
Paradox has said that, in view of the legal issues, it can't currently comment on the situation.