The Ad Hoc Committee of Consignors and Alliance Entertainment are objecting to the plan by the trustee of the bankrupt Diamond estate to borrow money to pay for lawyers and other fees (see “Diamond Trustee Lawyers Up“). The fees would go to fund the defense of the litigation brought by Alliance alleging fraud (in which the fate of Alliance’s $8.5 million deposit for its aborted purchase of Diamond is at stake), and the estate’s attempts to seize and sell publishers’ consignment inventory currently stored in Sparkle Pop’s Olive Branch, Mississippi warehouse.
The estate has very little assets other than the possible results of litigation, and over $7 million in priority debt to JPMorgan Chase, the DIP lender, prior to any new borrowing.
Both objections note the cost to the bankrupt estate of pursuing the litigation, which the estate may not win, and that any benefits of pursuing the litigation, if any, would only go the bank, not to any unsecured creditors.
In addition to the fees that would be incurred during the litigation, the consignors group notes that the estate really has no way to sell the consigned goods and have any money left over for unsecured creditors.
“With no employees, lapsed insurance policy with no insurance on the stock, a growing rent obligation to its purchaser of non-consignment stock, and no way to distribute the consigned stock, the Debtor has proposed no viable mechanism by which it could distribute stock at a cost that permits it to cover the cost of the proposed financing and additional rent and insurance charges in so doing,” the motion argues. “In other words, the Debtor has no hope of distributing any stock; it cannot afford to store and insure the stock; and yet it wants to borrow more money from its lender so that the lender can get paid 100% of whatever the Debtor recoups from a liquidation that would decimate the value of the property.”
The upcoming hearing on the trustee’s borrowing plan will determine whether the bankruptcy will be long, grinding, expensive and contentious, or could be wrapped up more quickly.
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‘ Some details of this article were extracted from the following source icv2.com ’
