Posted in: Comics | Tagged: Ad Populum, AENT, diamond, Sparkle Pop

Diamond Comics Moves To Chapter 7 Bankruptcy, As Banks Pull Funding

Diamond Comic Distributors Inc., the debtor in ongoing bankruptcy proceedings, moves to Chapter 7 bankruptcy, as the banks pull funding to keep going.

Published Sat, 13 Dec 2025 12:28:04 -0600

by Rich Johnston

Last updated Sun, 14 Dec 2025 16:59:21 -0600

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Diamond Comic Distributors Inc., the debtor in the long-running Chapter 11 bankruptcy, is now heading toward Chapter 7, with the debtor requesting that the U.S. Bankruptcy Court in Maryland convert its cases to Chapter 7 after its lender, JPMorgan Chase Bank, refused to continue funding operations. In a newly filed motion, the debtor tell the court bluntly that it can no longer remain in Chapter 11 because "the Debtors cannot continue to administer their cases without funding," and that JPMorgan has made clear it is "unwilling to finance further administration of these cases in Chapter 11."

U.S. Courts describe Chapter 7 bankruptcy as providing for "liquidation – the sale of a debtor's nonexempt property and the distribution of the proceeds to creditors," whereas "A Chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time." However, a debtor may sometimes choose to liquidate under Chapter 11 rather than Chapter 7. According to the Chapter 11 portion of the Bankruptcy Code, "A debtor in a case under chapter 11 has a one-time absolute right to convert the chapter 11 case to a case under chapter 7 unless: (1) the debtor is not a debtor in possession; (2) the case originally was commenced as an involuntary case under chapter 11; or (3) the case was converted to a case under chapter 11 other than at the debtor's request. 11 U.S.C. § 1112(a)."

Diamond, the debtor, is separate from Diamond Comic Distribution II, the distribution operation acquired by Ad Populum/Sparkle Pop in the bankruptcy auction earlier this year, which is still operating, although one departing staffer told us in September that they believed the comics distribution business "will not last much longer, maybe not even until the end of the year." The debtor's filing opens with a candid assessment of how the bankruptcy has unfolded. "As the Court is aware, these have been challenging cases," Diamond states, pointing directly to the auction process that saw Alliance Entertainment named the winning bidder, only for the deal to collapse amid disputes and litigation. According to the debtor, that process resulted in Universal Distribution and Sparkle Pop ultimately acquiring the company's assets, but only after demanding "substantial reductions in their respective purchase prices in order to proceed," leaving the estates with far less money than initially expected. "Notwithstanding the terms of their respective asset purchase agreements," the Diamond debtor says, Universal and Sparkle Pop demanded substantial reductions in their respective purchase prices in order to proceed, reductions that were later approved by the court. As to the status of various related matters in this proceeding, in the wake of this conversion to Chapter 7, it is not unlikely that those matters will develop and clarify well into 2026.

JPMorgan: "Unwilling to Finance Further Administration"

The most significant development leading to this Chapter 7 conversion filing comes from JPMorgan Chase Bank, Diamond's debtor-in-possession lender. The latest amendment to the DIP financing agreement had extended the maturity date to the 14th of November, 2025, but Diamond Comic Distributors Inc., the debtors in the case, say that after that point, JPMorgan refused to go further. "In the course of those discussions, the DIP Lender advised that it was unwilling to finance further administration of these cases in Chapter 11. Obviously, the Debtors cannot continue to administer their cases without funding." As a result, Diamond told the court on December 8 that it would be seeking conversion to Chapter 7. JPMorgan has only agreed to a short-term, limited extension of financing to allow for what Diamond calls "an orderly transition of these cases to proceedings under chapter 7."

The filing revisits the auction that once seemed headed for a very different outcome. At the March 2025 auction, Alliance Entertainment or AENT was eventually declared the winning bidder, after considerable resistance from the debtors, who claimed that a lower joint bid by Universal Distribution and Ad Populum/Sparkle Pop had been victorious, until AENT got the courts to reverse that decision with a bid of $85.37 million. But Diamond says Alliance later submitted a revised purchase agreement "materially inconsistent with its auction bid," refused to correct it, and ultimately terminated the deal after court approval. AENT stated that Diamond misrepresented their deal with Wizards Of The Coast and that it was due to be terminated. That matter is still in the courts. Diamond the debtor says they "believe that key factual allegations asserted by AENT are false," and that it has asserted "substantial counterclaims against AENT, including claims for breach of contract and the recovery of significant monetary damages." Those claims, Diamond now argues, are better pursued under Chapter 7. "At this point in time, the Debtors' remaining assets are comprised of claims and causes of action, as well as a disputed interest in the inventory subject to the Consignment Sale Motion…. Further time, effort and expense will be required to bring them to a conclusion." And as the company puts it plainly, "there is no longer funding or sufficient liquidity to support the continuation of these cases in Chapter 11."

"These litigations can most efficiently be pursued in Chapter 7"

Diamond, the debtor explicitly states that both it and JPMorgan believe Chapter 7 is now the most efficient path forward. "The Debtors and DIP Lender have each determined that, at this point in time, and without ongoing funding for the Chapter 11, these litigations can most efficiently be pursued in Chapter 7." Under the proposed order, the cases would be converted to Chapter 7 at 11:59 p.m. ET on the fifth business day after the court approves the motion, with a Chapter 7 trustee taking control of the remaining assets, records, and litigation. Diamond is also asking the court to temporarily stay all contested matters and adversary proceedings, arguing that "a brief pause at this stage of the litigation would not prejudice the defendants" and would allow the trustee time to get up to speed. A second filing requests that the court expedite the decision. Diamond has requested an expedited hearing, saying that prompt approval is necessary because JPMorgan's limited financing is intended only to bridge the company into Chapter 7 and that "an orderly transfer of these cases to Chapter 7… is in the benefit of all creditors," while delay would only increase costs with no prospect of reorganisation. Essentially, Chapter 7 marks the culmination of one lengthy process and the beginning of a new one.