- Date
- 25 March 2024
Full Disclosure:
What went wrong with Ted Baker?
By Jaysen Sutton |
Hi Reader šš½,
The Story:
Ted Baker announced its intention to appoint administrators last week. The British clothing retailer follows the likes of The Body Shop and Wilko to enter into an insolvency procedure in the last year.
What you need to know for your interviews:
Companies must carefully manage the money that comes into their business, as well as the money going out. They must also be mindful of the liquidity of their assets; in other words, how easily can they convert their assets into cash, when they need it?
A company becomes insolvent when it canāt pay its debts as they become due. The shareholders or directors of a company may voluntarily enter into an insolvency procedure. Alternatively, if a company owes money to a someone else, a ācreditorā, and they canāt pay it back, that creditor can file a winding up petition with the court to force the company to enter into an insolvency procedure.
Now, itās important to know that an insolvency procedure doesnāt necessarily mean the company wonāt exist anymore. The goal of administration, for example, is to achieve a better outcome for creditors than closing down a company. Third parties called āadministratorsā are appointed to manage the companyās affairs, and sometimes the company will be rescued, while an agreement is put in place with the creditors.
So what happened to Ted Baker?
The company has seen a downward trajectory since 2019, when Ted Bakerās founder was forced to resign after being accused by staff over forced hugging. After falling sales and the announcement of a major accounting error, Ted Baker went on to face substantial losses during the pandemic. The company was subsequently bought by Authentic Brands Group (āABGā) and taken private in 2022.
Now it's worth digging into ABG. The company basically buys lots of brands and sells the right to use that brand to other companies. It owns Reebok and Brooks Brothers, as well as the intellectual property or estates of celebrities like Marilyn Monroe and Muhammad Ali.
Now, thereās clearly a risk involved if youāre going to have other companies run the operations of your brand. For the collapse of Ted Baker, ABG blames the Dutch company AARC, which was appointed in April 2023 to run Ted Bakerās shops and its online business in Europe. In early 2023, ABG says they were willing to give AARC a short term loan, but the operator failed to inject funding into the business and meet its financial obligations.
ABG subsequently terminated its contract with AARC, āNone of us expected this. We were given assurances and have been disappointed. Weāre limited on what we can disclose at this stage, but we can assure all concerned that we are focused on addressing this issue to continue to support the Ted Baker brand.
As an important first step towards protecting the brand and our financial investment, we have used rights under our loan to remove AARC as a shareholder. A new independent board has been brought in to manage operations in its place.ā
But Ted Baker never recovered.
What does this mean for law firms?
Slaughter and Mayās corporate practice previously advised ABG on its acquisition of Ted Baker in 2022, with support across its finance, competition, pensions, tax, intellectual property and real estate teams. The law firmās restructuring practice is now advising ABG, while Simmons & Simmons is advising the holding company of Ted Baker.
Other law firms to advise on the recent high store collapses include Shoosmiths (Willko, Cath Kidston and Joulesā acquisition of Next), as well as Jones Day (The Body Shop).
Substantial legal fees can be racked up prior to the administration of a company. What do the lawyers actually do in this time? Well, you can actually read this in an administratorās proposals on Companies House. In the Willko restructuring, Shoosmiths claimed over Ā£100,000 for fees relating to reviewing the store portolio, drafting landlord letters for concessions, reviewing key supplier contracts, and liaising with in-house counsel regarding existing litigation matters.
Have any thoughts? I'd love to hear your perspective below!
| āContact [email protected] with any queries. |
