Information for Creditors of Diamond Scaffold Services, LLC
Case Number 22-11208 in the United States Bankruptcy Court for the Southern District of Alabama
THE DEBTOR HAS BEEN SUCCESSFUL
Diamond Scaffold Services, LLC was founded in 2002 in Louisiana. It currently has facilities in Athens, Tennessee and Slidell, Louisiana. The company supplies scaffolding equipment to its customers in the construction business. The company works with customers nationwide but has the majority of its operations in the Southeastern United States.
In the fiscal year 2019, the Debtor brought in around $11.1 million in gross revenues. In 2020, that number decreased slightly to $10.1 million. In 2021, Diamond Scaffold was able to rebound somewhat and brought in $12.2 million. However, for the first half of 2022, the company has only been able to generate around $4.7 million in revenues, putting it on pace to have its worst year in a while.
QUESTIONABLE CHOICES BY INSIDERS
While many circumstances, including the COVID-19 pandemic, contributed to the Debtor’s struggles, it seems that some bad decisions were made that compounded the problems. When it began to experience reduced cashflows due to jobs being shut down over safety concerns during the pandemic, the Debtor apparently chose to take out a significant number and amount of merchant cash advance loans, which notoriously charge extremely high interest rates.
To escape these interest charges, the Debtor executed some sale-leaseback transactions, but again ran into trouble and returned to the high-interest short-term money lenders. In trying to keep up with the sky high interest it had agreed to pay, the Debtor began missing payments to creditors, which resulted in litigation. This compounded the Debtor’s issues.
HOW THE COMMITTEE CAN MAKE AN IMPACT
Throughout the Debtor’s money struggles, it somehow found the capacity not only to continue paying its two insiders around $490,000 and $645,000, respectively, in the year prior to bankruptcy. In addition to those payouts, the Debtor was mysteriously able to make over $1.4 million in loans to affiliated companies that the Debtor now claims are “uncollectible” in its bankruptcy papers.
As the representative of unsecured creditors, the Committee can scrutinize these transactions and others to see if there are alternate sources of recovery for payment of Diamond Scaffold’s unsecured debts. While the Debtor will obviously be conflicted on pursuing insiders for recoveries, the Committee might be able to step in and find money for creditors.
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