Ralph Esmerian put Fred Leighton Holdings into Chapter 11 bankruptcy protection Tuesday to halt the auction of fine jewels and gems he used as collateral on a loan that soured.

The 115-piece collection was set to be auctioned at Christie’s Tuesday night, but the bankruptcy filing prevents creditors from collecting on their debt, said Helen Davis Chaitman, a Phillips Nizer attorney who works for Esmerian.

“The company’s solvent and profitable,” said Chaitman. “We just did this in order to prevent the desecration of this collection.” In addition to the Fred Leighton stores and inventory, the other entities that technically owned pieces to be auctioned were also put into Chapter 11 protection in Manhattan bankruptcy court.

That’s not the end of it, though.

“We have asked the bankruptcy court to allow the auction to occur Wednesday evening,” said a spokesman for Merrill Lynch. A Christie’s spokeswoman said there would be a court hearing. According to court documents, Christie’s has spent more than $500,000 promoting the auction and Merrill Lynch is pushing for it to be held no later than Thursday.

The last-minute filing caps off a whirlwind of legal activity for Esmerian, who borrowed money from Merrill Lynch to finance his 2006 acquisition of Fred Leighton, a fourth-generation fine jewelry dealer. Later that year, Esmerian tapped Martha Stewart’s former stockbroker, Peter Bacanovic, to be chief executive officer.

Esmerian missed part of a payment in the fall and still owes Merrill Lynch about $180 million.

An appellate court put the brakes on the auction on Monday, but on Tuesday, New York Supreme Court Justice Helen Freedman said the auction could go forward, according to Chaitman.

Fred Leighton will now be debtor-in-possession, said Chaitman, noting the company would be in a position then to sell all the jewels. That would include a rare 14.23-carat fancy-cut pink diamond.

The goal, said Chaitman, is to file a plan of reorganization in four or five months and work out a plan to pay back Merrill Lynch over five years with interest.

“The Chapter 11 filings were necessary to prevent an out-of-control Wall Street investment bank from making a cash grab which will destroy a viable business,” said Chaitman.

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