Diamond‘s bankruptcy is officially now in chapter 7 which means any remaining assets will be liquidated to pay back creditors. Individuals are appointed to handle the process and in December Morgan W. Fisher was named the interim chapter 7 trustee. On January 5, Fisher filed a motion to employ Zvi Guttman as the general counsel to the trustee in the case.

As we noted in our original reporting:

Early in the case, Guttman served as the local counsel to NECA whose affiliates include WizKids, Sparkle Pop, and Kidrobot. Sparkle Pop is one of the companies that purchased Diamond’s assets.

In the filing Guttman states he never spoke to the client and filed motions for the client’s New York counsel, made calls to put the New York counsel in touch with the committee and Debtor’s counsel, and helped the New York counsel attend a telephone hearing. NECA has waived any perceived conflict.

And due to that, Guttman filed to be moved as the counsel for NECA on January 9. But, what might seem like a simple task has a wrench thrown into the process.

The court responded today:

The Court will take no action on the motion unless and until (a) another local counsel for NECA, LLC enters an appearance, or (b) the appearance of NY Counsel is stricken. If such action is not taken by February 27, 2026, the motion will be denied.

The chapter 11 portion of Diamond was chaotic, and it looks like the chapter 7 process isn’t going to be smooth either.