Posted in: Comics, Current News | Tagged: AENT, diamond

Alliance Claims Diamond Bankruptcy Auction "Rigged From The Beginning"

Alliance Entertainment claims that the Diamond Comic Distributors chapter 11 bankruptcy auction was "rigged from the beginning"

Published Thu, 31 Jul 2025 17:05:04 -0500

by Rich Johnston

Last updated Thu, 31 Jul 2025 17:08:08 -0500

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As we mentioned last week, the transcripts for the court hearings that saw Alliance Entertainment or AENT, challenge the fact that they had been knocked out as the highest bidder in the Diamond Chapter 11 bankruptcy case have been unsealed. As shortly after it was declared that AENT were the highest bidder, Diamond Comic Distributors declared that the back-up bidders, Universal Distribution and Pop Sparkle, were actually the winners instead. AENT went to court and won. But after being confirmed as the winner by the courts, they then withdrew from buying Diamond a short time later, claiming fraud, and have now launched a lawsuit, which has gained a countersuit as well.

But back to the court session in which AENT wins their case to be reinstated as the highest bidder, and which we can now read. On the 7th of April, Diamond Comic Distributor Inc, the debtors in the Chapter 11 bankruptcy of Diamond Comics were represented in court by Mark Minuti of Saul Ewing, Alliance Entertainment or AENT, represented by Jason Teele, the Unsecured Creditors' Committee represented by Gianfranco Finizio, and the DIP lender JPMorgan Chase, represented by Katherine Culbertson, with other creditors such as The Pokémon Company International and Bandai Namco present. Remember those names, they will come up. And there might be a test.

The Suspicion of the Debtors

Mark Minuti, representing the debtors, began saying, "Now, there's a lot of back and forth, and I suspect we're going to get into some of that today, Your Honor" And he was right, we did. "The caselaw is clear that a frustrated bidder, like Alliance Entertainment, does not have standing to oppose the debtor's sale of assets."

The Confusion of the Unsecured Creditors

Mr. Finizio, for the Unsecured Creditors Committee, showed how perplexed they were with the whole thing. But they were pulling out the popcorn.

"The committee has spent the last several days trying to understand the debtor's rationale for moving forward with the backup bids instead of Alliance's bid… you'll hear today that the debtors will cite the execution risk and the potential inability to close as a reason for going with the backup bids. However, the committee, in speaking with Alliance's representatives, they state quite adamantly that there is no such risk as an ability to close. Basically, what the committee has uncovered in the last couple of days is that for every point the debtors have raised in support of moving forward with the backup bid, Alliance has a very different and oftentimes conflicting position with the debtors. As a result, unsecured creditors are caught in a crossfire between the debtors and an aggrieved bidder. Meanwhile, estate resources are whittling away, professional fees are racking up, and a process that's geared towards maximizing value is turning into one that is maximizing litigation… Amidst all this uncertainty, Your Honor, there is one thing that is crystal clear to the committee. We need to bring this process to a close… the estate and its creditors cannot afford the risks associated with this rock fight. Otherwise, tens of millions of dollars in claims, including approximately 45 to 50 million dollars of unsecured claims could end up as collateral damage… For the committee's part and given the he-said-she-said as between Alliance and the debtors, we too are interested in hearing the evidence, the testimony under oath, and understanding whether it is prudent to move forward with the backup bids."

The Confidence of the Bankers

Katherine Culbertson of Troutman Pepper Locke, on behalf of JPMorgan Chase, was on the side of the people working for the banks. Funny that,

"we are supportive of the debtor's business judgment in selecting the highest and best bid, with the goal of getting a transaction closed as quickly as possible. As Your Honor is aware, the debtor's liquidating needs in this case have been substantial and the loan balance owing from JPMorgan has increased slightly from more than 30 million at the beginning of the proceeding to close to 45 million now… Your Honor, we ask that the sale motion be granted, the objections be overruled and the sale of the purchased assets to Universal and Ad Populum be approved. The auction has been a tremendous success for the debtors and their bankruptcy estates and the debtors stand ready to exit the DIP facility, transfer the going concern of their businesses with related preservation of jobs and fund a meaningful distribution to unsecured creditors." So the banks were onside.

The Frustration of the Highest Bidder

And then we heard from Jason Teele of Sills Cummis and Gross on behalf of Alliance Entertainment, who gave their take on the situation and the auction. And started by claiming the whole thing was rigged.

"Your Honor, last week I stood before you at this podium and I said that the sale process in this case was rigged in the beginning to favor the debtor's preferred buyer. The proof of this is evident in the proposed agreements that the debtors filed late on Saturday afternoon. The Universal agreement, for example, is devoid of several of the economic demands that were made of Alliance after the auction had concluded and Alliance had been designated the successful bidder which have a material impact on the total consideration paid to the estate."

And we learnt what was going on after the auction…

"What's troubling here, Your Honor, is that the auction, which as designed to identify the highest and best bid, which it did, did not end at the conclusion of the auction when Alliance was designated as the successful bidder. We learned or the first time, when Mr. Gorin's declaration was filed on April 1st of this year, that the debtors were privately soliciting bids after the auction and only from their referred purchasers, Universal and Ad Populum… In combination with the debtor's conduct at the auction and in the days immediately following the auction, these facts call into question the very integrity of the sale process in this case."

There were a lot of private meetings going on, it seems. Seven hours worth just to start…

"First, while the auction was scheduled to begin on March 24th at 10:00 a.m. Eastern Time, it didn't actually begin until nearly seven hours later. That in and of itself is not concerning. However, once the auction did begin, we learned along with the other participants in the auction that the reason for that significant delay was because the debtors had privately been meeting with Universal and Ad Populum to allow those to combine their bids and bid as one entity. Later, in the auction process, one of the other qualified bidders, an entity called Basic Fund, requested permission on the record of the auction to discuss potentially submitting a combined bid with Alliance, ala the treatment that was given to Universal and Ad Populum before the auction even began. But the debtors denied that request without any meaningful explanation on the record or off the record."

I think that was "Basic Fun", court transcribers! But it is news that they also wanted to be joint bidders with AENT, and were denied that opportunity.

"Then, after the Universal and Ad Populum group dropped out of the auction, in light of Alliance's higher bid, the debtors took a break off the record — which was lengthy — and conducted a private meeting with the Universal representatives. We don't know what was discussed, we know that they met. And we submit, based on the evidence that's available to us — and we will present evidence on this point — that the parties were discussing whether Universal could or would continue bidding. And in the absence of the inability to pay more than Alliance's last bid on the record for the Diamond Comic's assets, that the parties concocted a scheme to continue to negotiate the Universal and Ad Populum bid after the auction, which is precisely what they did — and they're not even hiding that anymore."

They are not. But there's something else that someone is being economical with the actualité.

"When they returned to the auction room after this private discussions, the debtors announced on the record that Alliance was the successful bidder. After that, the debtors declared an intent to hold a separate auction or at least have further discussions with interested bidders for the sale of the assets of the debtor's UK business, United Kingdom business, despite the fact that Alliance's winning bid included the assets of the two-debtor entities that own the equity of Diamond UK."

The recent Diamond UK filing stated that neither AENT nor the Ad Populum/Universal joint bid included Diamond UK. This version of events contradicts that.

"It was revealed in Saturday's late afternoon filing that the debtors were actually having private discussions to sell the UK to Universal. Never before disclosed. The debtor's secret meetings and behavior did not change very much after the auction concluded. They refused to engage in any negotiations, let alone good-faith negotiations with Alliance. When Alliance sent a revised APA, revised to conform the document to the bidding at the auction, the debtors responded with a take-it or leave-it redline of the agreement and refused to discuss any of their proposed changes, although most of their proposed changes were new economic asks that were never discussed as part of Alliance's bid prior to the auction, Alliance's bidding at the auction or a part of Alliance's winning bid at the auction."

It was confirmed later that Universal was to buy Diamond UK separately. And then that was unconfirmed rapidly when it turned out Diamond was selling Diamond UK to Diamond UK.

"Nevertheless, Alliance decided to meet all but one of the debtor's new demands and sent revised agreements which were met with even more demands from the debtors. Those demands came not in the form of a redline agreement — which would have been helpful — but in the form of a short email with several bullet points of what Alliance needs to do to its agreement to make the agreement acceptable. Alliance finally managed to get the debtor's professionals to meet on a Zoom meeting on the evening immediately before a first-scheduled sale hearing. This call was not productive because the debtors conducted the call in a deposition-like fashion where they asked primarily Paul Navid from Province to confirm or deny various provisions in the Alliance APA. There was no meaningful back and forth on that call. Following that call and the adjournment of the sale hearing — even though Alliance consented to and agreed to all of the debtor's new demands, including what you heard about before concerning the prepaid inventory — which is approximately a 4.3 million dollar issue — which, as a footnote, is not defined in or accounted for in the Universal agreement that's filed on the docket late Saturday — we still received a terse one-sentence email from debtor's counsel stating simply without explanation that the debtors were going to proceed to seek court-approval of a sale to Universal and Ad Populum."

APA = arranged purchase agreement, the legal paperwork drafted to agree to what is being purchased, and for how much. You do need one of them.

"Why? We were there. We had met all of their post-auction demands. We could have backed away and said the additional 14 and a half million dollars that you demanded we add to our bid, our winning bid, we could have said no but we ultimately said yes. So why did they turn that down and say tersely without explanation that they were going to seek to close with Universal and Ad Populum. Well, we'll never know because they operated in total secrecy and in private. However, we did learn in the days that followed, not from the debtors, however, who refused to engage, but thirdhand from counsel for the creditors' committee, that the debtors had stated some vague, inchoate concerns about Alliance's ability to close."

This is clearly where the Unsecured Creators Committee were getting confused.

"It was almost laughable because Alliance is a large, publicly traded company that has been a leader in its industry since the early 1990s. In fact the company was founded right around 1990. Prior to the auction and to the committee counsel's to meet their request, Alliance documented its financial capacity to close this transaction… Sitting right back there is the Chairman of the Board of Alliance Entertainment who has a pen in his pocket who is willing and ready and able to close this transaction immediately after, if Your Honor enters an order approving the sale to Alliance and the debtors sign the agreement."

That was Bruce Ogilvie, as seen on a podcast near you.

"You heard from Mr. Minuti and from others that the legal standard that Your Honor needs to consider is which bid is higher and better. Okay. Well, even a cursory glance at Alliance's agreement versus a detailed review of the Universal and Sparkle and Pop agreements shows that the Alliance bid — for lack of a better word — is materially higher in terms of dollars. It's 85.3 million dollars of total consideration to the debtor's estates versus 84.4 total consideration under the combined Universal/Sparkle and Pop agreement… Clearly it's a higher offer. And I submit that it is a better offer also because of the certainty of closing. There is no risk, zero percent chance, that Alliance won't close. My client will stay in this courtroom with Your Honor and with the debtors signing the agreements and arranging the wires. He will not fly home — he lives on the West Coast — he will not fly home until this deal is closed should Your Honor approve a sale to Alliance. That is how certain that closing is."

But there was something else to address.

"If I could just conclude by addressing a couple of the points that Mr. Minuti made in his presentation to the Court. Alliance is not a frustrated bidder or an unsuccessful bidder. Alliance is the successful bidder. Alliance was designated by the consultation parties — which includes the debtors, the lender and the creditors' committee — I believe that's all three — all of them — that we were the successful bidder… We're losing daylight but we could close immediately. Thank you, Your Honor."

We are here as well. Next up… why Diamond Comic Distributors Inc, the debtors in this case, chose Universal and Ad Populum over Alliance Entertainment. It wasn't just the podcast…