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

Why Did Alliance Entertainment Change Its Mind About Diamond Comics?

Why did Alliance Entertainment change its mind about buying Diamond Comic Distributors? Bleeding Cool digs into the legal paperwork

Why did Alliance Entertainment or AENT terminate its agreed and won purchase of Diamond Comic Distributors? Under Chapter 11 bankruptcy, and based on court documents, there are only a few reasons it would be allowed to. And Bleeding Cool is going to go through them all and share some of out thoughts on the matter.

To recap, yesterday, Bleeding Cool ran the news that pop culture distributor Alliance Entertainment or AENT were cancelling their high eight-figure planned purchase of Diamond Comic Distributors, despite winning the Chapter 11 bankruptcy auction and having the courts confirm their right to purchase when Diamond's debtors stated they preferred a lower bidder, Universal Distribution/Ad Populum. This also potentially puts Diamond Comic Distributors in limbo, their bankruptcy-arranged "DiP" financing period from JP Morgan Chase is over, the thirteen weeks are up. This morning, Diamond issued a statement seeming to allude to that matter, declaring that they "will be operating on a business-as-usual basis" while the process of securing new partners unfolds.

AENT's termination of purchase was revealed in an SEC filing and stated that they "sent a Notice of Termination to Diamond". Per court documents, this Agreement may be terminated under limited provisos:

• "(A) by mutual, written consent of Purchaser and Seller," but it looks like AENT did this solo.
• "(B) by Purchaser in the event the Closing has not occurred". Court documents strongly imply that the closing cannot occur until the Official Committee of Unsecured Creditors' Challenge has been resolved, or the Challenge Period has ended.  This may be indirectly relevant, and we'll discuss this further below.
• "(C) by Seller in the event the Closing has not occurred", but it was not Diamond who terminated the sale.
• "(D) by Purchaser if Seller shall file a motion to sell all or part of the Acquired Assets to a third party other than Purchaser" but no such motion was filed, or if "Seller's Chapter 11 Case is converted to one under Chapter 7 of the Bankruptcy Code" which it has not. So what's left?
• "(E) by Purchaser if any term of the Approval Order is not reasonably acceptable to Purchaser in any manner that is materially adverse to Purchaser". We'll get to that Approval Order in a minute. The final proviso is "by the non-breaching party upon a material breach of any provision of this Agreement".

So the reasons have to be restricted. Before the auction, AENT was given full access to Diamond accounts under an NDA, so they knew exactly what they were bidding on. Diamond would have had to have sold substantial assets after the auction, Diamond breached the agreement, or there was a problem with the Approval Order. The Approval Order role is "approving the sale of the Acquired Assets to Purchaser free and clear of all Liens and Claims". A "lien" means a right to keep possession of property belonging to another person until a debt owed by that person is discharged.

The Unsecured Creditors Committee, representing those owed money by Diamond but without security to back it up, has filed paperwork with the courts extending the challenge procedure regarding "alleged liens, security interests, and other claims and encumbrances" as part of the Diamond Comic Distributors bankruptcy.

It is perhaps notable that the Unsecured Creditors Committee's Challenge Period was initially set to end on the 25th of April. A hearing was held on the 21st of April to request an extension to that Challenge Period. AENT filed their termination notice on the 24th of April, and the court granted an extension to the Challenge Period in a document filed on the 25th. The Challenge Period now ends on the 2nd of May, unless the matter is concluded before then.

Titan Comics, the comic book publishers' representative on the Unsecured Creditors Committee, has also launched paperwork by itself regarding its ccontract with Diamond Comic Distributors and the comic books that Diamond has in its warehouses being sold as assets as part of the bankruptcy deal. Representatives of Titan have not been able to comment on any of the goings-on, and nor have AENT.

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