Incredibly there has been yet another massive shock in the Diamond Bankruptcy case. Today Matthew W. Cheney, Acting United States Trustee for Region Four, which includes the Baltimore Division, filed a motion to convert the Chapter 11 filing to a Chapter 7 filing or dismiss the case entirely. (First posted at Graphic Policy.)
The cause: Diamond has not filed any Monthly Operating Reports since the case began. “Monthly Operating Reports for January, February and March are now outstanding and overdue.”
This gives Cheney, the Trustee overseeing the case, cause for changing the nature of the case.
I’m told that in legal terms, this filing was a “holy f*ck” moment. The best case scenario is that it’s a warning shot from court officials who want Diamond to get moving on resolving this and setting up payment terms for their 1000+ creditors. As of this weekend, Diamond was waiting to announce their excited new buyers. The court is waiting, too.
Worst case: Either converting the case to Chapter 7 or dismissal would be bad news to those creditors, and potentially even worse news for Steve Geppi.
A Chapter 7 filing is a “final death” for a company. Trustees would sell off all the assets under less favorable terms (“stripping for parts”), and creditors would get less money in settlements.
A dismissal is even worse for everyone – but especially Diamond and its owners and board of directors. It would remove all bankruptcy protections for them and creditors would be able to sue directly. As we’ve noted several times, Diamond founder Steve Geppi still owns several companies not involved in the bankruptcy, and even used them as collateral for the loan for Chase which has kept the company operating.
A dismissal would leave him and his remaining assets far more exposed to debt collection procedures.
This filing seems to have thrown yet another level of turmoil into this whole matter. To this observer, it’s also surprising given the level of detail in previous filings. I’ve covered several bankruptcies over the years – and even been a creditor in one – and I’ve never seen so much paperwork. Of course with millions of dollars involved, a high level of detail is not that surprising.
What is surprising that even given that level of detail – and well over a million dollars spent for lawyers, Raymond James and other consultants involved in the process – monthly operating reports were not filed. I, and everyone else covering this case, have been on the lookout for such filings, but never saw them. Thanks to Matthew Cheney, we now know that not only are such filings missing, they are a gravely important matter to the whole proceeding.
Hopefully this is just a procedural matter and we’ll have more clarity on this….soon?
Never a dull moment….
