Diamond Comic Distributors creditor groups have filed motions requesting return of consignment inventory and payment of administrative claims, even as accusations swirl on mis-handling of the inventory and a secret deal between a secured creditor and the trustee appointed to administer the bankruptcy.
Activity surrounding the consignment inventory, which was worth some $47.4 million at cost when Diamond’s Chapter 11 reorganization was converted to a Chapter 7 liquidation in December (see “Diamond Holds Nearly $50 Million”) moved into high gear when the bankruptcy court denied the trustee’s motion to extend the time for the bankrupt estate to assume or reject the consignment contracts originally executed between Diamond Comic Distributors and its suppliers. That denial, on February 26, was followed by a motion by one of the groups of consignment suppliers, the Ad Hoc Committee of Consignors (organized in July, see “Objections to Hostage Inventory”), renewing its request for the court to rule the consignment agreements terminated and to order the release of the inventory to the publishers.
The motion from the Ad Hoc Committee was filed on March 7. It included the facts that the bankrupt estate was not current on storage fees and that insurance had been allowed to lapse, risking the merchandise. The motion also provided evidence that contrary to a court order issued in September (see “Sparkle Pop to Stop”), Sparkle Pop, which acquired the comics and merch assets of Diamond but had no legal access to the consignment inventory, was continuing to sell consignment inventory as recently as February. Sparkle Pop was ordered to pay for any goods it had already sold as of September; those amounts are still held by the court and have not been disbursed to the publishers whose goods were sold.
If the court grants the motion from the Ad Hoc Committee, it would leave up in the air what happens to the consignment inventory from other publishers, which include the members of the Consignment Group, including Dark Horse Comics, Dynamite Entertainment, and other primarily comic publishers; publishers that filed individual objections to Diamond’s plans; and potentially others that did not object to date.
Separately, the Consignment Group has filed a motion requesting payment of $3.4 million in administrative claims for goods delivered during the Chapter 11. That’s only a dozen or so suppliers, and the amount exceeds the total amount of $2.9 million Diamond said it owed for all administrative claims in January (see “Other Numbers”), indicating that the amount Diamond said it owed may have been significantly understated.
And in a mysterious twist in the past couple of weeks, Goodman Games used an objection to the Trustee’s request for approval of a Florida law firm to assist in the legal work on the case to allege that there may be a secret deal between the Trustee and one or more secured creditors (Chase is the only one of which we’re aware) concerning the payment of the Trustee’s fees. That deal may be in the form of “a carve-out from collateral, a sharing of recoveries, or another similar agreement,” according to the filing. The judge reacted quickly to this claim, letting the parties know that the Trustee’s attorney approvals would not be issued unless the court received an explanation from the Trustee on the Goodman Games allegations; a deadline of March 15 was given.
Source: ICv2
