As expected, the Ad Hoc Committee of Consignors has submitted a motion objecting to Diamond’s Trustee Morgan W. Fisher‘s motion asking to borrow a limited amount of money from JPMorgan Chase Bank and to use cash collateral.
In their motion, the Ad Hoc Committee states their reasons line up with the objections submitted by Alliance Entertainment earlier int he week.
The Ad Hoc Committee goes further stating that Fisher had the opportunity in December 2025 to reject the contracts Diamond could no longer afford and resolve outstanding litigation. Instead, Fisher has chosen to “double down” and “seek costly financing to employ a team of professionals to pursue litigation claims.”
They point out that the financing does nothing beyond adding additional administrative burden on Diamond in the hope of recovering consigned stock that would only benefit JPMorgan Chase Bank.
The Ad Hoc Committee goes further with a pretty blunt point:
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. 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.
They go on further focusing on the consigned goods which are still in question highlighting in the distribution deal, Diamond is entitled to 10% of the MSRP of the sale of consigned stock but are now trying to get 100% of the proceeds to pay their lender.
But going back to the Trustee’s plan…
Fisher laid out three avenues to gain revenue if the loan from JPMorgan is approved, with litigation being a few of them. Though it’s the plan, Fisher doesn’t go into the likelihood that any of the litigation succeeds. There could be more debt incurred through this plan with no gain from it at all. There’s also no timeline which means no projected further cost to Diamond as well as if there is success, the cost of distributing the consigned goods.
As is, Sparkle Pop offered $1 million to purchase the consigned stock but four months have passed and the cost to rent the warehouse by Diamond is currently $576,000 with $144,000 per month. The amount they’d have to pay in storage outweighs the possible benefit of selling it. With warehouse rent owed on the stock, the lack of insurance, and more, the Ad Hoc Committee emphasizes that Diamond is in violation of its agreements to hold onto the stock. They also state they have an administrative claim if Diamond is able to sell the stock.
With all of that, the Ad Hoc Committee argues that borrowing money from JPMorgan to fund litigation isn’t in Diamond’s best interest and is only in the interest of JPMorgan who Diamond owes about $7 million.
You can read the full motion below.
