What little is known about this cancelled project comes via the Legions of Gotham website. After SubZero, work began in 1999 on an animated Asylum movie which was eventually shelved to make way for the Return of the Joker Batman Beyond DVD.
Although a script was never finished designs were developed for a story that would have included Batman and Robin as well as Joker and Bane.
In any case, its always sad to hear of cancelled projects, but maybe a dark and twisted movie focusing on Arkham may someday yet come to fruition. Fingers crossed.