Dive Brief:
- A group of Farfetch noteholders is asking a Cayman Islands court to liquidate the luxury e-commerce platform’s holding company following Coupang’s acquisition of the business’ assets last week.
- In the petition, which was filed Feb. 2, a trustee claims Farfetch Limited is unable to pay its debts, making it insolvent. The petition further alleges that the company’s liquidation is “just and equitable,” and requests independent liquidators be appointed to take control of the company to investigate “the circumstances of its apparent rapid and unexplained failure, and manage the Company’s affairs in the interests of its creditors.”
- The noteholders retained legal counsel prior to Coupang’s completed acquisition of Farfetch to challenge the deal. They claim to own more than 50% of Farfetch’s 2027 convertible notes, which remain unpaid and are due, according to the petition filed Feb. 2. Farfetch has acknowledged it cannot pay.
Dive Insight:
The petition impacts Farfetch’s legal entity in the Cayman Islands but doesn’t affect the assets acquired by Coupang.
After the $500 million deal was initially announced in December 2023, Farfetch said that holders of its Class A and B ordinary shares and its convertible notes, including the ones in question in the petition, wouldn’t recover their investments.
The current petition alleges that no “proper marketing process” was run for the business of Farfetch prior to the December 2023 announcement of Coupang’s planned acquisition. At the time of the noteholder group’s initial statement regarding this deal, a source told Fashion Dive that shareholders were frustrated, and that they felt Farfetch had “rushed into” the Coupang deal without trying to find another way to generate liquidity.
The petition alleged that the Coupang sale’s “egregious terms” destroyed value for the company’s creditors.
Under the terms initially announced in the Coupang deal, Surpique LP, which was previously called Athena TopCo., received the whole of the value of the Farfetch Group and the Term Loan Lenders will receive early repayment, per the document.
“However, at the same time, the other creditors of the Farfetch Group, including holders of the 2027 Notes, will receive no return on their investments, and instead hold worthless debt in a company that will be liquidated,” the petition states. “Likewise the shareholders of the Company will lose the whole of their investment.”
The petition additionally questioned the role of José Neves in the acquisition process, and argued that Neves appears to have “struck a bargain to transfer the business and value of the Farfetch Group” in exchange for remaining involved with or in control of the business “at the expense of the Company and its stakeholders.”
Farfetch declined to comment.
Meanwhile, Farfetch and some of its top executives, including Neves, are facing an ongoing class action lawsuit from shareholders filed in October 2023 over alleged false and misleading statements. That case alleges that Farfetch failed to disclose it was experiencing a “significant slowdown” of growth in the U.S. and China, among other claims.
Rumors swirled about Farfetch and its future when it announced it was canceling its Q3 2023 earnings call. Analysts at the time said the Coupang deal could help Farfetch reach a turnaround by helping it “stabilize, diversify, and pursue profitable growth amidst challenging market conditions.”
