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I read an article over the weekend about how a distributor (Diamond) is going bankrupt and is trying to sell off the stock of inventory they have (from many publishers) and have petitioned the judge involved to allow them to do so without paying the publishers the inventory came from.
What are the chances the judge agrees to this? Is this especially likely?
Is there a chance the judge says no and the inventory gets sold, but Diamond has to pay the publishers? Can the publishers claim the inventory and take it back?
Assuming all of that is the worst possible outcome (the publishers, including Paizo) are just screwed and lose out on all that material sitting with Diamond, how bad is the impact for Paizo?
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I don't know how many of Paizo's books (or anyone else's) that Diamond has and I don't think anyone outside of those companies knows either, so exact impact is hard to judge, but it would be bad.
The main thing for us, the fans, to remember is that if you buy your books direct from Paizo, that comes from Paizo's warehouse. We can't do anything about inventory potentially being sold off without paying the publishers, but we can do our best to support the publishers and not buy stolen merchandise.
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Paizo's official blog post on the subject is here btw: https://paizo.com/community/blog/v5748dyo71kxl
IANAL, nor do I work for Paizo, but my layperson understanding of the situation is that Diamond's attempt to seize their consignment stock to pay off their debts is a decently common bankruptcy tactic. Paizo and other publishers are going to try and contest it, but I'd be happily surprised if they succeeded. If Diamond is able to claim the consignment stock, there's a long line of people who Diamond owes money to, and Paizo won't be front of that line.
The worst possible outcome seems to be that Paizo's out a lot of money they expected to get from Diamond and some more on legal costs to fight this, while being undercut by Diamond selling the seized books for cheap. This would be a disruption to Paizo's cash flow for the next couple of months, but isn't life or death for them. Diamond was a major distributor, but Paizo has other distributors or deals with the customer directly for subscribers. I'd be more worried for the smaller guys on this list.
Or to quote Erik Mona, "We’ll be ok, but it’s a giant pain in the ass and blows our annual budget to s!$%."
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Debt owners usually have first claim on any assets held by a bankrupt company. Not sure if consignment is the equivalent of being a debt owner. I would imagine on the books consignment would be a credit on the inventory and a debit in accounts payable, so Paizo is owed money for the product with some contractual agreement on what happens to product if Diamond can't sell it such as a return to the publisher. Not sure if that contract would be prioritized over a debt owner that Diamond owes for general purposes.
If the publisher doesn't have first claim, then Diamond could sell the product using the proceeds to pay the highest priority debt owner.
Most likely the highest priority debt owners of a bankrupt company will be banks or business lines of credit from whoever gave it to them.
Some quick googling tells me:
Consignment:
Ownership: In a consignment arrangement, the consignor (owner) retains legal ownership of the goods until they are sold.
Possession: The consignee (retailer or agent) takes physical possession of the goods and is responsible for selling them.
Payment: The consignee typically pays the consignor a portion of the sale proceeds (commission) only after the goods are sold.
Risk: The consignor bears the risk of unsold goods, as they still own the inventory and may have to take it back if it doesn't sell.
Debt: Consignment is not classified as a loan, so it does not add debt to the consignee's balance sheet.
Debt Ownership:
Ownership: In debt financing, the lender (creditor) provides funds to the borrower (company) in exchange for a promise of repayment with interest.
Control: The company that borrows the money retains full control and ownership of its assets.
Repayment: The company must repay the borrowed amount (principal) with interest on a set schedule, regardless of business performance.
Risk: The company bears the responsibility of repayment, and if they cannot, lenders have a higher claim on any liquidated assets than shareholders.
Debt: The company takes on debt, which appears as a liability on their balance sheet.
So the thing that confuses me is that with consignment, the inventory should still be the property of Paizo (or the respective publisher). So like, how can anyone view those goods as able to be sold by Diamond (who doesn't own them) to settle their debts? That's essentially theft.
If I left my bicycle at my friends house, they couldn't just decide to sell the bike to pay their debts. Legally I would have a case against them for theft. And I realize this an overly simply example, and there's the idea of storage fees, etc that could be present. But none of that changes the concept that the inventory is the property of the publishers, and Diamond is essentially portioning to the court to "legalize theft" of that inventory in their possession without giving the publishers an opportunity to claim those materials.
Because I agree that their should be a deadline, a timeline, in which Diamond can say "Hey, I'm going out of business come reclaim these items or I'm claiming it as my property". That actually seems reasonable from a legal standpoint, if annoying.
If I left my bicycle at my friends house, they couldn't just decide to sell the bike to pay their debts. Legally I would have a case against them for theft.
To refine the example a bit:
I left my bicycle with my friend and told him to sell it for me and we would split the money. They sold it. I went to go ask for my share of the money and they said, 'Oh, I used all of it to pay my credit card bill this month.'
It still feels like theft.
But unfortunately, I am suspecting that Xenocrat here has the right idea. If the legalities of the situation were as simple as these simple examples are trying to make it out to be, the lawyers for Diamond wouldn't even be trying it. A commission agreement likely has to be very specific and limited. If those conditions are not met, and it is more of a handshake agreement like our examples with the bicycle are, then the property is going to be in a much more nebulous state.
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It doesn't appear to be that simple, Claxon.
Under the Uniform Commercial Code the consignee is treated as having an ownership interest, and the courts have ruled that this interest can override the rights of the consignor in the event that the consignee goes into bankruptcy.
From my cursory research, it seems that unless the consignor jumped through all of the many legal hoops necessary to perfect their consignments they basically have no case here.
Here's a nice summary of the law in fairly non-technical language.
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That’s utterly ridiculous
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That’s utterly ridiculous
You'd be surprised how often laws have been carefully crafted over time to make sure that the banks come out ahead and everyone else gets screwed. That's pretty much what is going on here.
Legally it works. It's completely morally bankrupt and is effectively theft.
It's completely morally bankrupt and is effectively theft.
Bankruptcy as a whole is morally bankrupt and is effectively theft. The only question is, 'theft from whom?'
But considering that the historical alternative is debtor's prison...
It doesn't appear to be that simple, Claxon.
Under the Uniform Commercial Code the consignee is treated as having an ownership interest, and the courts have ruled that this interest can override the rights of the consignor in the event that the consignee goes into bankruptcy.
From my cursory research, it seems that unless the consignor jumped through all of the many legal hoops necessary to perfect their consignments they basically have no case here.
Here's a nice summary of the law in fairly non-technical language.
Ouch. An ownership interest. Owners are last in line to receive any compensation from bankruptcy. That is terrible. They are considered equal partners in all debt born by the company.
That’s utterly ridiculous
Yep. In Australia we normally see Retention of Title clauses in sales contracts to protect the seller in some of these circumstances. Basically ownership doesn't change till full payment is received. But US is different.
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It's completely morally bankrupt and is effectively theft.Bankruptcy as a whole is morally bankrupt and is effectively theft. The only question is, 'theft from whom?'
But considering that the historical alternative is debtor's prison...
Bankruptcy is an expected systemic risk in a free market that allows the process of creative destruction to occur in a capitalist model. It's healthy and better than the alternative.
It's not theft. It's business failure. If the business fails, the assets are sold off to pay debts according to legal priority as the business is liquidated.
As older folks have seen, if the business is big enough this can create systemic risk to associated businesses. Paizo is an associated business with Diamond thus it exposes them to risk and loss unfortunately.
I remember Diamond Distributors from ages past. One of the biggest distributors of comics way back when comics were far more common. I imagine they have had hard times in the digital age.
It sounds like Paizo is taking a pretty hard hit if they can't recover any of their product. It's all going to depend on how much debt Diamond must pay and whether they can move the books. If Diamond can't move the books, maybe Paizo could buy them back at a discount recovering some of their product while reducing the overall loss.
It sucks to have to purchase your own books, but you'd have to calculate the comparative loss of letting Diamond liquidate the product themselves versus paying a substantially reduced cost to recover product you can move through another distributor.
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It's completely morally bankrupt and is effectively theft.Bankruptcy as a whole is morally bankrupt and is effectively theft. The only question is, 'theft from whom?'
But considering that the historical alternative is debtor's prison...
Bankruptcy is an expected systemic risk in a free market that allows the process of creative destruction to occur in a capitalist model. It's healthy and better than the alternative.
It's not theft. It's business failure. If the business fails, the assets are sold off to pay debts according to legal priority as the business is liquidated.
Taking someone's product you don't own, selling it, and not paying the actual owner is literally theft. Because that's what this is: Diamond gets to take stock they don't own and haven't paid for, sell it, and send nothing to the actual owners.
These are not Diamond's assets. If you or I did that, we'd be in jail. But in the US, institutional theft is treated entirely differently.
Trying to dress it up as anything else is just corporatespeak for a system that is rigged for the benefit of certain parties over everyone else.
It's completely morally bankrupt and is effectively theft.Bankruptcy as a whole is morally bankrupt and is effectively theft. The only question is, 'theft from whom?'
But considering that the historical alternative is debtor's prison...
Well its not like corporations can go to prison, even when they're doing actually criminal things. Which this isn't.
Diamond's Creditors shouldn't get to simply sieze and sell other companies assets that Diamond never paid for. There's no world in which that's right unless you're an investment banker.
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Taking someone's product you don't own, selling it, and not paying the actual owner is literally theft.
I'd say that a key difference between this situation (as I currently understand it) and 'theft,' as the term is normally used, is that the companies in question agreed to this arrangement when they signed their contracts with Diamond.
If I own my house, put it up as collateral for a business loan and then fail to meet the terms of that loan then my creditors can force me out of my house, sell it, and pocket the profits.
But I doubt that most people would view the loss of my house as 'theft' since I willingly agreed that that might be a consequence of taking out the loan. I gambled on my business becoming successful enough to enable me to pay back the loan on time, and I lost.
Similarly, it seems that when these companies signed their contracts this situation was well-understood to be a possible consequence because that's how this area of the law has worked for some time.
In signing those contracts they willingly made a bet that Diamond wouldn't go bankrupt, and so they'd be able to make a profit from those contracts. For a lot of companies that held true for a long time, but in this one instance their bets didn't pay off.
To equate a company losing money because a financial gamble didn't pay off for them with, say, someone having their house broken into and their valuables taken against their will seems odd to me.
It's completely morally bankrupt and is effectively theft.Bankruptcy as a whole is morally bankrupt and is effectively theft. The only question is, 'theft from whom?'
But considering that the historical alternative is debtor's prison...
Bankruptcy is an expected systemic risk in a free market that allows the process of creative destruction to occur in a capitalist model. It's healthy and better than the alternative.
It's not theft. It's business failure. If the business fails, the assets are sold off to pay debts according to legal priority as the business is liquidated.
The entire point of bankruptcy is that there isn't enough money or assets available to pay off all of the debts. Yes, they are paid off in some sort of priority order...
And then everyone left over just ... gets to lose out and go home empty-handed.
Saying that this is better than the alternatives that societies have come up with over the centuries is reasonable. I even agree.
But that doesn't mean that it is morally right.
'Better' is not the same as 'good'.
And yes, in some - probably too many - cases where a business is set up with the intent of failing and gathering up a bunch of bad business decisions into a handbasket to send to hell, it is effectively theft. Theft by fraud.
A small company I worked for had the owner land in jail (for non-business reasons) and a business partner stepped up to "help" with the management of the company. His plan was to take and transfer anything of value from the company that I worked for (hopefully including my employment, though his plans were stopped before I ever found out) into one of his companies, but leave all of its debts - and then let the owner file bankruptcy from jail on the shell of the asset-free, debt-ridden company that remains. That is absolutely straight-up theft. Theft of the company assets that the owner of my company had. Theft of the invested money that would never end up being repaid to those creditors that invested in the company.
I don't assume that this is the case here with Diamond. I am not going to even try to pull statistics out of my ear regarding how often such fraud does happen. But I will say that the idea of bankruptcy being a viable option is something that is ripe for abuse. Abuse that is equivalent to theft.
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It's completely morally bankrupt and is effectively theft.Bankruptcy as a whole is morally bankrupt and is effectively theft. The only question is, 'theft from whom?'
But considering that the historical alternative is debtor's prison...
Bankruptcy is an expected systemic risk in a free market that allows the process of creative destruction to occur in a capitalist model. It's healthy and better than the alternative.
It's not theft. It's business failure. If the business fails, the assets are sold off to pay debts according to legal priority as the business is liquidated.
Taking someone's product you don't own, selling it, and not paying the actual owner is literally theft. Because that's what this is: Diamond gets to take stock they don't own and haven't paid for, sell it, and send nothing to the actual owners.
These are not Diamond's assets. If you or I did that, we'd be in jail. But in the US, institutional theft is treated entirely differently.
Trying to dress it up as anything else is just corporatespeak for a system that is rigged for the benefit of certain parties over everyone else.
It's completely morally bankrupt and is effectively theft.Bankruptcy as a whole is morally bankrupt and is effectively theft. The only question is, 'theft from whom?'
But considering that the historical alternative is debtor's prison...
Well its not like corporations can go to prison, even when they're doing actually criminal things. Which this isn't.
Diamond's Creditors shouldn't get to simply sieze and sell other companies assets that Diamond never paid for. There's no world in which that's right unless you're an investment banker.
No, it is not theft. It's why the legal system doesn't see it is theft. They did not take the product, they were given it on consignment and it becomes part of their inventory.
When a bankruptcy occurs, whoever is conducting the bankruptcy will take control of it and consider the asset of the company that is going bankrupt and liquidate according to the bankruptcy agreement paying out creditors according to priority.
If the company in question cannot afford to paid all parties associated with the business after assets are liquidated, then the associated business must accept the loss as part of the process of doing business and write off the loss as a business loss against current income.
The only way you could prove theft or fraud is if you the business entity did not attempt a good faith attempt to fulfill the business contract. I'm assuming Diamond Distributors tried to remain a solvent going concern and failed, thus requiring entering into bankruptcy with is usually a forced situation to restructure debt or liquidate existing assets usually employing bankruptcy lawyers with all involved parties waiting to see what portion of their business interest they can recover.
If Paizo could prove Diamond Distributors acted in bad faith or defrauded them, then they could maybe pursue a fraud legal action to recover consigned property. That would likely be a high burden of proof and create additional costs that wouldn't be likely to be recovered if Diamond Distributors is insolvent.
Bankruptcy is a very hard situation for all involved. Very painful. No one likes to see their business fail. It's not help to start calling Diamond thieves like they wanted to be in this situation when if the business were solvent, they would have kept paying their bills and fulfilling their contracts. They just couldn't.
It's a business failure. That's it. It's part of the risk of doing business for all businesses. No one likes it, the company going bankrupt the least.
I was not sure how consignment worked. If it works as an ownership stake in legal terms where Paizo and Diamond jointly own the product, then that is a bad position for Paizo as owners share the risk of insolvency.
If you were a stockholder in a bankrupt company, you have to eat the loss even if it was company management that messed it all up. If they committed fraud, then you have to file a lawsuit hoping to gain some superior position to creditors. That can be really hard to do.
From a business perspective, it may be best to compete against other bidders in an asset auction. Paizo may be able to recover the product for pennies on the dollar in an auction of assets.
I don't think very specific RPG books have much value in the open market. They only have value to specific companies that distribute that type of material. So if Paizo offered a low bid to recover their product, it may be taken by the bankruptcy lawyers as I can't imagine many people bidding against Paizo for books they can best distribute for maximum profits as they have the best knowledge of how to move their product.
It will depend on who is competing for their remaining inventory. If Amazon is competing for it, that could be not great. If random small distributurs are bidding, then Paizo might be able to put in a competitive bid to recover their product and make more money selling it through other channels than taking a pure loss of the product.
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After reading the Blog post, it sounds like the loss of inventory is the least of Paizo's concerns. It's the loss of major product channels that are more damaging causing slow to market sales that will hurt cash flows, revenues, and profits. Cash flows is probably the worst as that is how you pay for everything you're doing.
I hope they can weather the storm. Losing Amazon and other large sales channels is not great for operational cash flow. I hope they can get those back online.
Paizo has really been through the ringer in recent years.
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In my personal experience I’ve seen consignment used for big ticket things like boats sold by small mom and pop dealers: they can’t afford to invest $20k (or whatever) on something that might sit on the lot for untold months, so the manufacturer or wholesaler takes the risk spread over many dealers.
The policy reason to require registration/perfection of consignment inventory is to make it easy for a bank to lend money to that mom and pop (or big corporate) business. They aren’t going to investigate the precise contract terms for inventory and other assets on hand that serve as security when they make a business loan. Instead the requirement is placed on the consignor, as the lowest cost possessor of this information with the biggest incentive, to perfect their claim and put lenders on notice that the consignee doesn’t own something in their physical inventory/possession.
Obviously for small unsophisticated parties perfection may be unknown or when dealing with small low value items in moderate volume perfection may be too costly. It’s then a form of bankruptcy insurance you didn’t know about or chose not to avail yourself of for rational reasons.
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It's not like this is the only legal form of stealing there is. Like someone else said, you'd be surprised how often the law is constructed to make sure the banks (Or other authorities) can screw you over.
I'm just gonna repeat, and expand my question:
Will there be a way to know if/when the back stock is sold and to whom so that we can avoid purchasing from them (because it would screw over Paizo)
And would that (very limited) boycott be appropriate and not reflect poorly on the creators, Paizo.
Diamond's bankruptcy is mainly being covered by websites that cover comics news, like BleedingCool (which is a meh site imo, but is the best coverage of this particular topic I've seen). So if you keep an eye on them they'll probably report further developments, like whether the judge will approve this.
As Paizo stated in their official post, if you buy directly from their website, or your FLGS you shouldn't have to worry about accidentally buying from Diamond. Otherwise you'll have to wait for more details when they come out.
It's completely morally bankrupt and is effectively theft.Bankruptcy as a whole is morally bankrupt and is effectively theft. The only question is, 'theft from whom?'
But considering that the historical alternative is debtor's prison...
I wouldn't consider bankruptcy in and of itself to have moral standing.
Effectively you have more debt than you can pay, and you tell your creditors that "you're giving up". Sometimes that results in restructuring of the company and selling off assets and continuing to operate. And yes, it could be viewed as theft from your creditors, but I feel like that is the risk that creditors take. In my view, that is the risk they're taking and in the event of bankruptcy, they are the ones who should get screwed.
Also, debtors prisoners only work for individuals not corporations. But individual debtors generally aren't the problem (they don't get big enough loans to matter) for the system to fail.
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It's completely morally bankrupt and is effectively theft.Bankruptcy as a whole is morally bankrupt and is effectively theft. The only question is, 'theft from whom?'
But considering that the historical alternative is debtor's prison...
I wouldn't consider bankruptcy in and of itself to have moral standing.
Effectively you have more debt than you can pay, and you tell your creditors that "you're giving up". Sometimes that results in restructuring of the company and selling off assets and continuing to operate. And yes, it could be viewed as theft from your creditors, but I feel like that is the risk that creditors take. In my view, that is the risk they're taking and in the event of bankruptcy, they are the ones who should get screwed.
Exactly. Creditors are charging interest for a reason: they're taking on risk. A situation where they get to profit but also get to outsource the risk to everyone else isn't the system working properly: it's the system being gamed to the benefit of a few.
We've seen that over and over again, like how shoplifting is treated as a more serious crime than wage theft, or how "financial services" companies have a habit of getting taxpayer bailouts when they make ridiculous bets that go sideways because they're so well connected politically.
From the coverage of this and the reactions so many people involved have had, it's pretty clear a lot of folks had no idea that consignment would simply allow Diamond to size and sell off everything with no compensation to the actual owners of those books. That is simply not a fair system.
Legally it seems they can do, but what's legal and what's moral have very little in common. So I'm calling it what it is: legalized theft.
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Yeah, I don't have a problem with Diamond declaring bankruptcy.
I have a problem with Diamond laying claim and seizing the inventory to sell as though it were their property, that shouldn't be legal (although it appears that it is, or at least commonly approved, during the legal proceedings of bankruptcy).
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I am literally laughing out loud at the idea that Unfrozen Caveman Game Company is just a poor rube getting ripped off here. Maybe so, but ignorance of the law and not being competent to navigate legal and regulatory requirements of business in rare circumstances doesn't actually help you. You still lose in the bankruptcy, you still pay fines to the EPA, you still get your health license revoked until you fix the uninsured sewage line spewing in your restaurant kitchen, etc. People don't actually have to break or rewrite generally applicable rules that exist for well reasoned purposes because you like one side of the dispute more than the other.
Consignment isn't a magical get out of jail free on this. If it is a consignment then, guess what, Diamond has a, uh, liability to ship the goods back when requested - companies in bankruptcy can't spend money on things without permission from a bankruptcy judge to avoid looting the company to pay off the owners/equity holders or other favored parties, and that would include paying shipping fees and labor to box up and return Paizo's stuff.
Bankruptcy is about freezing all existing liabilities and trying to maintain ongoing operations, to the extent feasible, to recover as much as possible to those they owe. The bankruptcy code, and by reference the UCC, then determine the ranking of those claims.
The good news is that they provide a way to elevate consignment claims above/exempt from bankruptcy proceedings, just like they do for mortgages and other forms of secured liabilities with degrees of seniority/exemption. The bad news, well, we already know.
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Exactly. Creditors are charging interest for a reason: they're taking on risk. A situation where they get to profit but also get to outsource the risk to everyone else isn't the system working properly: it's the system being gamed to the benefit of a few.The producer-to-distributor-to-buyer arrangement has risk. From the distributor's perspective, it's quite irrational and unreasonable to say that Paizo gets their share of the profit of that arrangement but none of the risk, right? That's rigging it in Paizo's favor, and thus unfair, according to your own logic.
Except Diamond makes money on every unit they do sell, without having to pay upfront for it. If they don't sell it, they just send it back.
So no, that's not my logic at all. That's twisting things to make it look like somehow this wasn't a good deal for Diamond when it was actually a mutually beneficial arrangement until the bankrupcy happened, and it's not like Diamond went bankrupt due to having to pay for inventory they couldn't move or something.
It's completely morally bankrupt and is effectively theft.Bankruptcy as a whole is morally bankrupt and is effectively theft. The only question is, 'theft from whom?'
But considering that the historical alternative is debtor's prison...
I wouldn't consider bankruptcy in and of itself to have moral standing.
Effectively you have more debt than you can pay, and you tell your creditors that "you're giving up". Sometimes that results in restructuring of the company and selling off assets and continuing to operate. And yes, it could be viewed as theft from your creditors, but I feel like that is the risk that creditors take. In my view, that is the risk they're taking and in the event of bankruptcy, they are the ones who should get screwed.
Also, debtors prisoners only work for individuals not corporations. But individual debtors generally aren't the problem (they don't get big enough loans to matter) for the system to fail.
The Housing Crisis of 2008 says hello. Individuals can definitely get big enough loans to create a systemic risk, usually in big ticket items like houses, education, and car loans if enough went belly up. It's all layered and flows both ways.
Single big loans by companies are often less dangerous because they have higher lending requirements than lots of smaller loans to retail borrowers buying houses and such which have lower lending standards and more government support.
Housing busts have been some of the biggest systemic risks in our history driven by smaller borrowers unable to payback mortgages as the use of credit by the public for big ticket purchases has become more common in the past 60 or 70 years.
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Exactly. Creditors are charging interest for a reason: they're taking on risk. A situation where they get to profit but also get to outsource the risk to everyone else isn't the system working properly: it's the system being gamed to the benefit of a few.The producer-to-distributor-to-buyer arrangement has risk. From the distributor's perspective, it's quite irrational and unreasonable to say that Paizo gets their share of the profit of that arrangement but none of the risk, right? That's rigging it in Paizo's favor, and thus unfair, according to your own logic.Except Diamond makes money on every unit they do sell, without having to pay upfront for it. If they don't sell it, they just send it back.
So no, that's not my logic at all. That's twisting things to make it look like somehow this wasn't a good deal for Diamond when it was actually a mutually beneficial arrangement until the bankrupcy happened, and it's not like Diamond went bankrupt due to having to pay for inventory they couldn't move or something.
That's not what's happening in bankruptcy. You don't seem to grasp the process. Much of Diamond's assets are frozen. They will be expected to sell all the product they can, then pay creditors they owe according to priority.
If Paizo's spot on that list is reached, Paizo will be paid. If Paizo's spot on that list, then others will be paid first.
Consignment is agreement by Diamond to accept Paizo's product for sale without Paizo having to pay them for storage, sales, or what not. That is why it is a co-ownership relationshop.
Diamond is accepting the product and delaying payment until they sell the product. Paizo is not having to pay Diamond to move or store their product until sold. Both are accepting a share of the risk the product won't sell in terms of costs.
You seem to viewing this as one-sided: like Diamond somehow tricked Paizo into consigning the product to them. That's not happened at all.
Consignment is a way for publishers to move product with shared risk with the distributor reducing costs and risk for both. It's normally a good deal for both companies. Many book publishers do this as well.
It allows the distributor and publisher to better manage a print run as neither knows exactly how many units will sell. So they share the risk hoping it will all sell.
I love how some of you are painting this as a "law" meant to benefit the banks and such. It's nothing of the kind. Consignment was a business agreement to benefit publishers and distributors by creating a shared risk agreement that reduced the costs for both. It's normally a very business friendly agreement that better helps manage inventory and sales for both companies.
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Y'all, I'm just a idiot trying to follow you, but If I'm gonna take y'all seriously, I'm gonna need some bono-fides.
Whip 'em out, your expertise. Anyone here a lawyer (with or without specialty in financial or bankruptcy law) or an accountant... or taken a business through bankruptcy and thus had a front row seat...
I have no ability to make any of you stop arguing but... do we REALLY know what we're arguing about?
Also, the logical (And historical for that matter) result wouldn't be debtor's prison, it would be indentured servitude. but as someone else already said, companies don't face consequences for screwing people over.
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Y'all, I'm just a idiot trying to follow you, but If I'm gonna take y'all seriously, I'm gonna need some bono-fides.
Whip 'em out, your expertise. Anyone here a lawyer (with or without specialty in financial or bankruptcy law) or an accountant... or taken a business through bankruptcy and thus had a front row seat...
I have no ability to make any of you stop arguing but... do we REALLY know what we're arguing about?
Also, the logical (And historical for that matter) result wouldn't be debtor's prison, it would be indentured servitude. but as someone else already said, companies don't face consequences for screwing people over.
My bonafides? Haha.
I do a lot of investing. I have invested in a few companies that went bankrupt. Ownership of stock puts you in an ownership position, which means last on the list of people getting paid when whatever assets are left over are sold to satisfy debts. It's not a pretty process. A lot of people losing a lot of money, jobs, assets, livelihood, and the like. There are some scumbag owners out there who try to abscond with a big enough share of whatever was earned to be considered thieves, but it's not Joe Blow working at the company following the policies trying to make the business work. I have no idea who owns Diamond or if they did anything shady to drain the coffers before the ship sunk. That part is unknown.
As far other bonafides, I learned about consignment when I was trying to publish some comic books many years ago. Consignment is very beneficial to publishers, but is a shared risk.
I was a first time publisher. So you have no proven sales track record. You pay for a print run of a new book after investing all your cash, time, and work into making the book. It's pretty costly. Then you gotta figure out how to sell it. So a distribution like Diamond...that was who I dealt with in ages past as they were the big comic distributor in the elder days...will agree to take on a certain print run and try to sell it for you. That's where the distributor comes in.
They won't purchase an unproven print run from a new publisher. They don't want that risk. So they came up with consignment.
What does consignment do for the publisher? They don't have to pay sales costs for the book. They are agreeing to let the distributor take a certain percentage of the sale price for selling the book through their sales channels which the have developed over time. So this helps them sell product over a distributor's proven sales channels.
What does consignment do for the distributor? The distributor avoids paying up front costs for a print run of a book without knowing how many they can or will sell. The publishers provides them a print run of a given product that Diamond agrees to take to sell through their sales channels.
This helps Diamond by not having to pay up front costs for an unknown amount of sales.
This shared risk helps the distributor and publisher by reducing the risk each takes. The publisher has reduced selling costs and allows them to access a large sales channel through a well known distributor. The distributor builds a relationship with a publisher to help move their products through their proven sales channels for a portion of the profit. It's normally a pretty win-win situation if the product moves.
If the product fails, normally the distributor sends it back. Sometimes they sell on consignment through their sales channels like book stores. A book store might agree to take a product on consignment from a distributor paying the distributor only for the books they sell, returning any unsold copies to be returned to the original publisher.
It's been an agreement for along time to share the risk between publisher-distributor-retailer that shares the risk associated with each new published work. That's where the business of publishing becomes some guess work: how much will this product line sell.
Publisher has to figure how big a print run to make.
Distributor has to figure out how much they can move through their sales channels.
Retailer has to figure how much shelf space to give a given work according to how much they can move.
In this case, the middle part...the distributor is going bankrupt breaking this business chain. Seems the publishers are going to get hit the hardest as Diamond, one of the big dog distributors goes down.
It's completely morally bankrupt and is effectively theft.Bankruptcy as a whole is morally bankrupt and is effectively theft. The only question is, 'theft from whom?'
But considering that the historical alternative is debtor's prison...
I wouldn't consider bankruptcy in and of itself to have moral standing.
Effectively you have more debt than you can pay, and you tell your creditors that "you're giving up". Sometimes that results in restructuring of the company and selling off assets and continuing to operate. And yes, it could be viewed as theft from your creditors, but I feel like that is the risk that creditors take. In my view, that is the risk they're taking and in the event of bankruptcy, they are the ones who should get screwed.
Also, debtors prisoners only work for individuals not corporations. But individual debtors generally aren't the problem (they don't get big enough loans to matter) for the system to fail.
The Housing Crisis of 2008 says hello. Individuals can definitely get big enough loans to create a systemic risk, usually in big ticket items like houses, education, and car loans if enough went belly up. It's all layered and flows both ways.
Single big loans by companies are often less dangerous because they have higher lending requirements than lots of smaller loans to retail borrowers buying houses and such which have lower lending standards and more government support.
Housing busts have been some of the biggest systemic risks in our history driven by smaller borrowers unable to payback mortgages as the use of credit by the public for big ticket purchases has become more common in the past 60 or 70 years.
No, but yes.
Loans to individuals (a single loan) is almost never going to be enough to cause great risk to bank. But when banks started giving out loans to lots of people that they couldn't afford, and then those (hundreds of) thousands of people started defaulting that is a problem. The problem wasn't any single individual loan (and obviously that's what I was referring to in my previous post). But banks kind of deliberately started giving out loans they knew people couldn't afford and then sold off those bad loans to other banks for a fraction of their value (but still made money) and then when people defaulted en masse that did in fact cause a problem. And the kind of correct answer (from my viewpoint) would have been to let the owners of that debt collapse, but the financial repercussion to the whole system would have been worse, at least that's what the majority of people thought (and they're probably right). Too big to fail.
That's why there was reform in the wake of that crisis, to ensure that people were getting loans they were unlikely to be able to pay back. Not that it worked 100%, but it reduced the risk that could be taken.
It's completely morally bankrupt and is effectively theft.Bankruptcy as a whole is morally bankrupt and is effectively theft. The only question is, 'theft from whom?'
But considering that the historical alternative is debtor's prison...
I wouldn't consider bankruptcy in and of itself to have moral standing.
Effectively you have more debt than you can pay, and you tell your creditors that "you're giving up". Sometimes that results in restructuring of the company and selling off assets and continuing to operate. And yes, it could be viewed as theft from your creditors, but I feel like that is the risk that creditors take. In my view, that is the risk they're taking and in the event of bankruptcy, they are the ones who should get screwed.
Also, debtors prisoners only work for individuals not corporations. But individual debtors generally aren't the problem (they don't get big enough loans to matter) for the system to fail.
The Housing Crisis of 2008 says hello. Individuals can definitely get big enough loans to create a systemic risk, usually in big ticket items like houses, education, and car loans if enough went belly up. It's all layered and flows both ways.
Single big loans by companies are often less dangerous because they have higher lending requirements than lots of smaller loans to retail borrowers buying houses and such which have lower lending standards and more government support.
Housing busts have been some of the biggest systemic risks in our history driven by smaller borrowers unable to payback mortgages as the use of credit by the public for big ticket purchases has become more common in the past 60 or 70 years.
No, but yes.
Loans to individuals (a single loan) is almost never going to be enough to cause great risk to bank. But when banks started giving out loans to lots of people that they couldn't afford, and then those (hundreds of) thousands of...
We're a credit driven society in America. Most of it consumer debt. That's why it can be systemically risky because of how many folks are involved in consumer debt.
I get what you're saying in that an individual consumer isn't much of a risk. The cascade effect of consumer debt default is often more systemically risky than commercial debt.
Commercial debt is often more rigorously secured with assets. A bank won't fund the building of a huge building without very secure agreements with people with a lot of money and insurance. The government doesn't have as much protection in place for commercial debt because businesses aren't as risky as consumers and there aren't social agendas for loans that size.
I think I understand the gist of your point because as we're seeing with this Diamond Bankruptcy, a big player in a niche market can have an outsized effect on that niche market even if they aren't systemically risky to the overall country. In this case, the publishers are all solvent going concerns that aren't in danger of going out of business, but the distributor as the go-between is such a major cog in that niche market that it is systemically risky to that niche of businesses.
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Diamond isn't making the decisions any more if they declared bankruptcy. They have some arrangement with a court as to what they can do. That's why acting like they're thieves is thinking they have a say in the matter. Once you enter bankruptcy proceedings, you are relinquishing control to a bankruptcy court and the lawyers involved.
We're a credit driven society in America. Most of it consumer debt. That's why it can be systemically risky because of how many folks are involved in consumer debt.
I get what you're saying in that an individual consumer isn't much of a risk. The cascade effect of consumer debt default is often more systemically risky than commercial debt.
Commercial debt is often more rigorously secured with assets. A bank won't fund the building of a huge building without very secure agreements with people with a lot of money and insurance. The government doesn't have as much protection in place for commercial debt because businesses aren't as risky as consumers and there aren't social agendas for loans that size.
I think I understand the gist of your point because as we're seeing with this Diamond Bankruptcy, a big player in a niche market can have an outsized effect on that niche market even if they aren't systemically risky to the overall country. In this case, the publishers are all solvent going concerns that aren't in danger of going out of business, but the distributor as the go-between is such a major cog in that niche market that it is systemically risky to that niche of businesses.
100% agreed. Commercial debt is backed by something, and generally loans higher than assets* aren't given**.
*Assets sometimes includes projected revenue which is where it gets trickier
**Or to your point there is some sort of insurance to help minimize the risk to the bank
And yes, your conclusions about the impact of the distributor is where I was trying to go with this.
And for small publishers, this could be a big problem. The loss of the distributor and the loss of inventory could cause such a cash squeeze. Not solely because of lost product, but because now they need a new distributor and to get the product to market, meaning they will have a period of substantially reduced sells meaning a potential bankruptcy of their own when they can't pay their own debts or make payroll.
WoTC will be fine. Paizo can weather it. Others will struggle and may have to shutter.
This whole thing has me wondering if it would be possible for publisher and distributors to enter into a relationship where, for legal purposes, the distributor purchases the stock from the publisher at a set price, with generous repayment terms (net 180, 6 months, or perhaps even longer) with an option to return items at that same price.
It's the shared ownership of consignment that is a problem to me, that opens up publishers to risk in the case of bankruptcy. If the publisher instead had sold the inventory to the distributor, their would not be shared ownership, but instead the publishers would be a creditor to the distributor. Meaning a better chance of recouping (at least how I understand the proceeding of bankruptcy).
Heck, maybe it's an agreement of 25% of value to be paid in 6 months, 50% of value to be paid in 9 months and total net to be paid in 1 year, still with an option to return the product. Essentially the publisher is giving an short no interest loan to the distributor.
Diamond isn't making the decisions any more if they declared bankruptcy. They have some arrangement with a court as to what they can do. That's why acting like they're thieves is thinking they have a say in the matter. Once you enter bankruptcy proceedings, you are relinquishing control to a bankruptcy court and the lawyers involved.
Although Diamond could have done some shady things prior to bankruptcy (not saying they did, just a possibility) you're rifht once they enter bankruptcy they don't have control. However, the situation could still be considered legalized theft, albeit by the court system rather than Diamond as an entity.
Diamond isn't making the decisions any more if they declared bankruptcy. They have some arrangement with a court as to what they can do. That's why acting like they're thieves is thinking they have a say in the matter. Once you enter bankruptcy proceedings, you are relinquishing control to a bankruptcy court and the lawyers involved.
This appears to be chapter 11 bankruptcy and it sounds like they are already purchased and still basically in operation. It seems a lot more dubious to just claim and sell all the inventory from the consignors when they are still operating and selling stuff.
The next big event is the bankruptcy court is holding a hearing about the consignment stock on July 21st.
Wrt owners, Ad Populum has bought Diamond, but at least according to them they still have to go through the bankruptcy court for this sort of stuff. It was also the debtor entity of Diamond Comics that filed to seize the consignment stock. I'm not sure who controls that.
On the other hand, the comic book publishers trying to stop the consignment seizure also also filing paperwork against Ad Populum for getting behind on payments for the stuff Diamond has been selling, so we'll see how that goes in court as well.
You know what this thread has made me think more than anything, our financial systems are too complex, set up for the little guy (typically) to get screwed, and for banks (or lenders) to come out ahead.
And I really wish we could start over and make it simple and not in the multibillion dollar companies favors....without also destroying the financial systems we're comfortable with as end users (which would absolutely be impossible).
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Diamond isn't making the decisions any more if they declared bankruptcy. They have some arrangement with a court as to what they can do. That's why acting like they're thieves is thinking they have a say in the matter. Once you enter bankruptcy proceedings, you are relinquishing control to a bankruptcy court and the lawyers involved.This appears to be chapter 11 bankruptcy and it sounds like they are already purchased and still basically in operation. It seems a lot more dubious to just claim and sell all the inventory from the consignors when they are still operating and selling stuff.
Actual attorney here. Some experience with Bankruptcy, but not a bankruptcy attorney.
Deriven is correct. Once you enter bankruptcy, CH 11 or otherwise, most of the decisions are made by the Bankruptcy Trustee. This is a Court official who acts to equitably distribute the assets of the (in this case) business to all the Debtors, as guided by Bankruptcy Law. The Debtor has to get the Court's approval to do almost anything, even pay their own lawyers.
Bankruptcies are usually referred to by a "chapter." It is a reference to the section of the bankruptcy code that regulates the type of debt relief sought. The three most common types of bankruptcies are Chapters 7, 11, and 13.
Chapter 7 is liquidation. This is for both businesses and individuals. The Court takes all the assets and sells them to pay what it can of the debts owed per the bankruptcy code. The whole point is there isn't enough money to go around so everyone is going to lose some money. Generally secured creditors are first in line. Your house is put of as "security" for your mortgage. So in a Ch 7, your Mortgagor gets your house. Now that may pay the full mortgage, but sometimes it doesn't. An unsecured creditor, usually a credit card or other line of credit, is usually out of luck for in a Ch 7. They get nothing, or pennies on the Dollar.
Chapter 11 and 13 are restructuring debt. Ch 11 is for businesses and Ch 13 is for individuals. Most creditors will take a hair cut and the terms of the debt repayment may be restructured, but the idea is that at the end the business emerges from bankruptcy in a stronger position to continue as a going concern moving forward. A company took out a loan expecting X% growth, that did not materialize or the market significantly changed so they are no longer as profitable, so they can no longer make the loan payments and payroll at the same time. If we can restructure the debt or adjust it, the company is still viable.
Sometimes a company starts in Ch 11, but when we start getting into the weeds it becomes clear that the company is not viable, and the Ch 11 is converted into a Ch 7.
Diamond is in a Chapter 11 bankruptcy. You can find a lot of information from Diamond themselves on the website Diamond Comics Restructuring Information. They provide a copy of all the filings in the bankruptcy. They sold several divisions to other companies, with permission from the bankruptcy court. The proceeds go to pay down the debt. Ad Populum and Universal Distribution LLC purchased some divisions for $41 Million. But that only covers the cost of the loan Diamond took out ($41 Million) from JP Morgan Chase to keep the doors open during the bankruptcy.
If you are interested you can even pull the motion filed by Diamond to sell the consignment stock HERE.
This motion feels short sighted from my perspective. If you expect to continue distribution once Ch 11 is completed, this action would seem to be lighting your company on fire. Paizo and these other companies are going to think long and hard about working with Diamond again in the future even once Ch 11 is closed. I wonder if they are in worse financial condition then they initially thought and they may be looking at converting the remaining divisions to a Ch 7. Just speculation.
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This motion feels short sighted from my perspective. If you expect to continue distribution once Ch 11 is completed, this action would seem to be lighting your company on fire. Paizo and these other companies are going to think long and hard about working with Diamond again in the future even once Ch 11 is closed. I wonder if they are in worse financial condition then they initially thought and they may be looking at converting the remaining divisions to a Ch 7. Just speculation.
Getting off my soapbox for a moment (because everything else I said in this thread was about the morality of it, not the legality of it) and just talking about practicality of it: I was wondering about this.
If the goal here is to keep operating, liquidating your supplier's stock and them getting shortchanged on it seems like a terrible idea. Who is going to want to supply Diamond more stock after that without cash up front?
A distributor that suppliers can't trust doesn't seem like a viable business.
Well, Kelseus kind of just made that same point, and it leads to speculation that ultimately Diamond may end up in chapter 7 bankruptcy.
If that is the case, then taking the inventory to sell off debts does make sense.