Partners from Herbert Smith Freehills (HSF), Davis Polk and Eversheds Sutherland have secured advisory roles on the administration and £3.4m sale of online furniture retailer Made.com to Next.
In early November, Made.com filed notice of its intention to appoint administrators, advised by a HSF team led by London restructuring partner John Chetwood and including City corporate partners Ben Ward and Caroline Rae. Since the administration, 320 Made.com jobs have been axed as the company collapsed.
On 9 November, Next announced plans to buy Made.com’s brand name, domain names and IP, but not its inventory or staff. Administrators at PwC will take control of the remaining assets.
Eversheds has been enlisted as Next’s counsel, with a team spearheaded by corporate partner Robin Johnson, insolvency partner David Gray and privacy partner Dave Hughes. Davis Polk is advising Made.com in a corporate capacity – the US firm’s London team has historically represented the retailer, most notably on its £775.3m IPO in 2021.
While the sale will preserve Made.com’s brand, it will do little to console those affected by the mass job cuts. Jeremy Whiteson, restructuring and insolvency partner at Fladgate, explains the lack of appetite for saving jobs: ‘Buyers feel that the costs of staff, buildings and infrastructure make a turnaround much harder. The intangible property in the business freed from these costs seems a better proposition for business owners. That leaves employees stranded.
‘The position is worsened by the TUPE regulations, which are designed to protect employees and transfer their contracts to a new owner of the business but can make it hard for a buyer to take some but not all of a business’ staff without assuming the whole of the payroll liability.’
If there are FTX creditors here, then there are routes that they can take that would involve commencing litigation here to try to get assets.’
Marc Jones, Stewarts
Soon after, on 21 November, British clothing company Joules announced that it had filed a notice to appoint administrators, putting another 1,600 retail jobs at risk. Shoosmiths, which acted for Joules on its acquisition of online retailer The Garden Trading Company in early 2021, has been instructed on the administration, with a team led by restructuring partner Sarah Teal.
While an ominous development for a retail industry that is already feeling the pinch of a cost of living crisis that has still yet to take hold in earnest, this could finally mark the start of the long-awaited comeback for restructuring and insolvency practitioners.
After a wave of insolvencies of major retailers in 2019 and 2020, with the collapse of Debenhams, Arcadia and Karen Millen, UK government subsidies brought in to protect businesses through the Covid pandemic largely served to kick the can down the road for struggling retailers.
Notes Whiteson: ‘It would seem that the financial pressures retailers faced a few years ago are still there, if not worse – rising staff costs, difficulties with overseas supplies, and challenges from online-only competitors. Those problems will now be exacerbated by the rising cost of debt and power.’
‘It is to be expected that the larger retailers, particularly those which are publicly listed (like Joules and Made.com) will be the first to seek insolvency protection – with their bigger creditor exposure and closer attention to directors’ duties encouraged by listed company advisory teams. However, it is likely that smaller retailers are facing similar pressures which will emerge over coming weeks and months.’
Sam Brodie, financial restructuring partner at Akin Gump in London, echoed this sentiment: ‘Parts of the retail sector have been under pressure for a while, with certain businesses struggling even before the onset of Covid. The current macro headwinds that are restricting consumer discretionary spending, coming so soon after the difficulties for the retail sector brought about by the pandemic, are likely to mean that the sector continues to face challenges in the near-to-medium term.’
‘Parts of the retail sector have been under pressure for a while, with certain businesses struggling even before the onset of Covid.’
Sam Brodie, Akin Gump
Meanwhile, across the Atlantic, Sullivan & Cromwell has been called in to advise on the Chapter 11 bankruptcy of cryptocurrency exchange FTX following its collapse in November.
The Sullivan team is led by New York restructuring co-heads Andrew Dietderich and James Bromley. The general counsel of FTX, Ryne Miller, is also a legacy Sullivan & Cromwell partner. He joined FTX in August 2021 after eight years at the Wall Street firm, where he made partner in 2019.
While the US bankruptcy has been filled in Delaware, the impact of the Bahamas-headquartered company’s bankruptcy could reverberate around the globe, said Marc Jones (pictured), finance litigator at disputes specialist firm Stewarts: ‘If there are FTX creditors here, then there are routes that they can take that would involve commencing litigation here to try to get assets. It’s also possible that FTX may have entered into contracts that have English law or English jurisdiction clauses in which disputes over those could be litigated here. Also, from an insolvency practitioner’s point of view, they are going to have to go chasing assets around the world.
‘What will be interesting is how cryptocurrency and other digital assets will be dealt with in insolvency as the law is very unsettled, particularly where you’ve got an insolvency that straddles different jurisdictions. We’re in the early days of this new asset class and there’s only a handful of legal decisions touching on some very basic issues and nothing really dealing with the complexities of insolvency situations.’
This is the latest bankruptcy to hit the digital asset sector, following the fall of crypto lender Celsius Network in July. The high-profile FTX fallout is likely to be a tipping point for increased regulatory scrutiny of the sector, added Jones.
Despite these high-profile examples on both sides of the Atlantic, the market is still a way off the long-predicted influx of insolvency and restructuring work, notes Brodie: ‘We have certainly seen an uptick in the number of stressed and distressed situations in the market in recent months, as clients approach us with more live or potential mandates. That said, when viewed against the challenging macroeconomic backdrop and negative market sentiment more generally, the flow of new and large restructurings and insolvencies is still relatively modest. But we expect the volume of work in the restructuring space to increase in Q1 and Q2 of next year.’