Yesterday was the deadline for publishers to object to Diamond’s plan to liquidate the stock held in their warehouse on consignment. And many publishers did object. Brett Schenker has all the details at Graphic Policy, and but the list of objectors includes:
- TwoMorrows Publishing
- Magma Comix
- Graphitti Designs
- Abstract Studio
- NBM
- William M. Gaines, Agent, Inc.
- Humanoids
- A consortium of 13 publishers, led by Dynamite, and including Aspen Comics, Black Mask Studios, DSTLRY Media, Dynamic Forces, aka Dynamite Entertainment, Heavy Metal International, Magnetic Press, Massive Publishing, Oni-Lion Forge Publishing Group aka Oni Press, Panini UK Ltd., Punk Bot Comic Books, aka Alien Books, The Penn State University aka Graphic Mundi, Titan Publishing Group, and Vault Storyworks, aka Vault Comics
- The Game Manufacturers Association (GAMA) on behalf of Skyscraper Studios, Roll for Combat, and Liminal Esports, aka Snowbright Studio
- The Ad Hoc Committee of Consigners, a group of creditors formed to represent their interests.
There are many many pages of filings, any contracts included, and slightly different legal reasoning for various filings. As reported by Schenker, the Ad Hoc Committee’s objection includes one of the most powerful arguments of all:
NOWHERE DOES DIAMOND SAY WHAT STOCK IT INTENDS TO SELL!
[…] But, the Ad Hoc Committee doesn’t stop there as they state “there are other defects in the motion.”
- Diamond doesn’t identify the bidding process or what stock is being sold;
- The sale would impact royalty payments and create losses for the consignors in addition to what they’d lose in the stock;
- It’d depress the market for that stock since Diamond would have sold it so cheap;
- Consignors may seek termination of the agreements so the stock should be returned if they do;
- Basically, Diamond wants to sell other people’s property which will harm the owners which is not allowed in chapter 11 which is to be “governed by principles of equity and fairness.”
What happens next? The hearing to decide all of this was originally to be held Monday, July 21st. Diamond filed a motion to move it to July 24th or 25th, smack dab in the middle of SDCC, supported by Image, as their lawyers were out of the country until the 21st. A virtual hearing will be held today, July 17th to approve moving the NEXT hearing to the 24th or 25th. However the Group of 13 has asked that the hearing dealing with the overall consignment matter be moved to AFTER Comic-Con. In theory we will know today when the hearing will be held.
In addition, a hearing was set to be held yesterday regarding Diamond’s $1 million debt to Dynamite. We have yet to learn the results of that.
Will the court rule for the creditors? It would be a horrible blow to comics publishers, creators and retailers if they don’t – a flood of cheap liquidated stock into the marketplace would damage all three. It also seems gruesomely ironic that Diamond is selling off their creditors property in order to pay….their creditors – but there is a big difference between unsecured creditors like publishers and secured creditors like banks. While protecting even unsecured creditors would seem to be a reasonable outcome to ask for in court, unfortunately it is not always so. When the Sports Authority went bankrupt, a similar situation emerged, with brands as huge as Nike and Under Armour objecting to their consigned stock being sold in a Chapter 7 liquidation. The results were mixed. I’M NO LAWYER, and this source is a credit counseling company, but it states:
In its recent decision, the bankruptcy court conceded there is no bright-line rule for determining whether a business is substantially engaged in consignment. However, in previous cases, courts have held that 20% or more of the business’s inventory must be consigned goods.
In this case, it was determined Sports Authority’s inventory was comprised of only 14% of consigned goods.
“…the Debtors never “substantially engaged” in consignment transactions. WSFS and the Debtors stipulated that at no point, pre-or-post petition, did the Debtors’ total inventory include more than 14% of consigned goods.”
“…the threshold for substantial engagement is met only if consigned goods comprise “20% or more” of the value of the Debtors’ inventory.”
It seems likely that more than 20% of Diamond’s stock was on consignment, so they may pass the “substantially engaged in consignment” test. But will that apply here? Again, I am no lawyer.
A few things do seem likely however. Firstly, comics publishers have learned the meaning of a U.C.C. form and if you’re reading this and you are consigning substantial amount of any kind of product anywhere, you need to file a U.C.C. form! As Nike might have said, just do it!
Secondly, SDCC this year is going to be a nail biter.
Finally, there are so many other moving parts of this mess, including the fact that publishers and suppliers HAVE STILL NOT BEEN PAID BY NEW DIAMOND since May 16th! Few retailers are actually ordering products from Diamond any more, but there is still a lot of money owed, including, as mentioned, more than $1 million to Dynamite alone. While publishers are spending money on their lawyers to get their stock back, they haven’t even had a chance to file what seem like inevitable lawsuits about that money….unless they have to just write it off. This seems like a sad and outrageous situation to me.
