Pre-packs: now you can have your say

Fashionista has been mulling over the buzz words which have come out of the current economic climate to ensure that she is on top of all the new lingo. Fashionista does, of course, consider herself to be a "recessionista" i.e. a person who is able to remain fabulously stylish during times of economic hardship and is all too aware that her "credit" has been severely "crunched" (if you are unsure of the meaning just check the latest edition of the Oxford Dictionary where the term now appears). There is even a dedicated blog for Recessionistas giving you access to the best bargains in town.

One of the more controversial buzz words, in Fashionista's view, is the term "pre-packs" which has become a staple phrase particularly in the retail sector owing to the large number of "pre-pack" deals which have taken place in this space.

A "pre-pack" is generally a deal where a company is put into administration and its business and assets are then immediately sold under a sale agreement which was negotiated before the administrator was appointed. Recent examples include the sales of Faith, USC and Envy which took place towards the end of last year, all of which were sold by way of a pre-pack transaction.

There are no specific regulations that deal with pre-packs although the insolvency processes and insolvency practitioners are themselves under the regulation of their professional bodies and control of the courts. Fashionista is aware however that the Association of Business Recovery Professionals have recently produced Statement of Insolvency Practice 16 which obliges insolvency practitioners to give substantial information to the unsecured creditors as to why a pre-pack was used. This is however not provided until after the deal has been concluded and accordingly some might say that is a little late to be closing the gate (with the horse being long over the horizon).

Pre-packs can help preserve businesses and jobs, as well as achieving an enhanced value for the assets of an insolvent company, but critics say they allow the old management to walk away from their debts too easily whilst still allowing them to remain involved with the purchaser going forward (like a phoenix from the flames). The mantra of "if at first you don’t succeed, try, try again" does not seem in such circumstances to instil the right level of confidence! Fashionista's view on this is much the same as her view of stonewashed jeans with matching denim jackets- there's a time and a place for them (in the latter case, for cowboy themed fancy dress parties only!).

Interestingly, the Insolvency Service has now invited complaints from anyone who feels unduly disadvantaged by a pre-pack sale so it seems that there is an effort to give pre-packs a much needed image overhaul. Time will tell as to how effective this is.

Creditors dig their heels in on Stylo CVA plans

Fashionista, like most women on the planet, loves her shoes and has been admirably trying to make up for the drop in consumer spending by flexing her plastic. However, one women's efforts are insufficient to stop falling sales, particularly as regards the footwear sector, which has been hard hit over the past year or so.

Stylo, the footwear group which owns Barratts and Priceless, looks to be the most recent footwear victim as it failed to secure enough support for its Company Voluntary Arrangement ("CVA") recently and fell into administration, like so many of its footwear competitors. So what then Fashionista asks is a CVA and why might a creditor (for example, a landlord) not be in favour of such an arrangement?

For those who don't know, a CVA is a court administered agreement between a company, its creditors and its members entered into with a view to avoiding a complete corporate failure. CVAs can take a number of forms but they essentially look to compromise creditors' claims in return for a reduced payment pro rata to those creditors' claims and/or payment over time, the end result being the survival of the restructured company.

A CVA can be undertaken either by the company itself, acting by its directors, or by an administrator (or liquidator as the case may be) when the company is already in an insolvency process. The moratorium given by the administration allows time and protection from creditor interference for the administrator to draft a proposal for a CVA. Alternatively, the directors of the company may propose a CVA without first putting the company into administration or liquidation. The CVA needs to be approved by ordinary resolution at a members meeting and by a majority in excess of three-quarters in value of the creditors voting at a creditors meeting, which unfortunately Stylo wasn't able to secure.

In considering CVAs, landlords are often asked to take a significant haircut on their outstanding rental payments and indeed to reduce rental payments going forward or provide rent-free periods as part of the suggested proposals. This is often coupled with waivers of guarantor liabilities from other group companies, a precedent which (particualrly for landlords with large portfolios of properties) many are not prepared to accept. In addition, landlords and other creditors may find it an unattractive proposition to allow the existing management retain control of the business going forward - if they have failed once, the view often taken is that they are likely to fail again.

Recent reports in Drapers suggest that Stylo chairman and chief executive Michael Ziff and family have bought the Stylo, Barratts and Priceless names from administrators Deloitte as well as 160 stores, the internet business and Stylo’s 165 concessions within Dorothy Perkins which is good news for Stylo and good news for Fashionista and other shoe lovers.

Sounding off: the dangers of reviews and comment-based sites

Fashionista's attention has been drawn by Vicki Day of Pure Sauce to a growing desire in the UK for replicating the model of sites such as RetailDish.com, a US site which encourages fashion designers and sales reps to post details of which retail stores they have done good and bad business with. Some of the comments can get pretty catty indeed. One particularly choice example reads along the lines of alleging that "X should be locked up in jail or fed to the Hawaiian SHARKS...this woman is a criminal". No mincing words there then!

But is it legal to have such a website in the UK? Isn't this just an invitation for nightmare defamation claims?

The laws in the UK don't prevent sites from allowing posters to upload comments per se and such sites certainly can be very popular. Think for example of the success of electronic goods or restaurant review sites or even blogs which invite viewer responses. It is also worth remembering that there are potential defences to a defamation claim such as truth (although proving this may be another matter).

However things can certainly go wrong. Posts can be made which are defamatory or unlawful in other respects such as infringing of intellectual property rights. Whilst the poster is unlikely to be able to rest easy (and even the mask of anonymity won't help if a court order can require the website to disclose the poster's details) a website may still be able to find some protection in the UK provided it treads carefully and has done its homework. A website may, for example, be able to rely on defences in Electronic Commerce Regulations where it is only hosting such information and has not monitored, amended or had notice of the unlawful content. It is a tricky area however and much care is needed in the design of a website in order to understand the risks and ensure that it is set up and managed in a defence-friendly manner. It will also be essential to respond to complaints and take down content which is the subject of such complaints as soon as possible.

An alternative option is to monitor and amend content to ensure that it is toned down and no longer unlawful but this can be very risky if something is missed. Fashionista also thinks this can rather spoil the freedom of speech and spontaneous gossip fun of it all which attracts readers in the first place....

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Fashionista-at-law aims to deliver stories about the hot legal topics facing the fashion sector, highlighting current and need-to-know issues and sharing tips about how to deal with them. Our contributors have experience across the entire range of legal issues of interest to the fashion industry from corporate and intellectual property, through to employment, e-commerce and real estate, not forgetting (in the current climate) insolvency and restructuring.

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Better deals for all tenants or just the luxury sector?

Landlords are starting to realise that if they want to achieve lettings and fill their high street or high end retail premises, they have to be more flexible on rents. While some of the big retailers are either closing stores or not in a position to expand, the smaller value retailers are being made offers and getting approached to take space they would not normally be considered for. Fashionista's view is that there are some bargains to be had.

In this credit crunch era landlords are becoming troubled tenants' largest creditors and can wield significant influence in particular at creditor meetings. As reported in Drapers, at the recent creditors meeting to save Stylo (the owner of Barretts and Priceless) the vote to accept the company voluntary arrangement is said to have been defeated by the group's landlords who voted against reduced turnover rents.

So, where does this leave the more up-market fashion retailers? Are they in a better position to negotiate favourable terms on new leases, especially where the available premises are considered 'high end'? Up market retailers may secure lower rents per square foot more easily than their more down-market contemporaries because of their strong brand values and clarity as to their target customer. They stand out in shaky economic times. Wouldn't a landlord of a higher end property want a better looking, more resilient, on-trend fashion tenant?

It appears so - the market is awash with the news that many luxury brands are seeking and securing prime retail space in London – Fred Perry has recently taken an assignment of a lease of space in James Street WC2 which has 6 years to run while Jack Wills, the self styled university outfitter, is taking over Diesel's Kings Road premises and a lease with 11-years to run. The bargaining position of landlords is not to be totally written off, as recent situations have attested. Jack Wills, for example, is paying a premium for its recently acquired Kings Road premises.

January online spending up 32%

Fashionista is enjoying reading some good news about the economy! Drapers reported yesterday that according to the IMRG Capgemini e-Retail Sales Index, total online spending rose 19% in January, with the increase in clothing and accessories, a fantastic 32%. Whether consumers feel that they get better value for money online, or whether it's purely down to the convenience factor, it is clear that more and more people are shopping for clothes online.

With online now the obvious growth sector for fashion retail, all retailers must now invest in a transactional website which delivers the best experience possible. For example, Fashionista noticed that Alexon has recently announced that as part of its overhaul of the Bay Trading brand, it will be launching a transactional website for the brand in the Spring.

Brands looking to launch an online offering are likely to outsource some or all of the online retail process to an external service provider. While outsourcing can save costs, brandowners should be mindful that they will lose control over delivery of the consumer experience. As a result, it's vital that the contract with the service provider sets out a clear description of the services being provided, together with detailled service levels and monitoring and reporting provisions. Service levels enable the brand to set the threshold of what service is "good enough", and service credits encourage performance by acting as a credit against the contract price if the service falls below the required threshold.

Fashionista warns that, as with all things legal, the devil is in the detail. For instance, if the website is hosted by a third party, the brand will want an assurance that the website will be available 24/7. Many hosters offer a guarantee of "99.5% availability". While this may sound impressive, it would actually allow 43 hours of downtime in a year. And what's more, the downtime could be at key selling times, such as the run up to Christmas. Speaking from experience, Fashionista recommends investing in the legal resource necessary to get a solid contract at the outset so you have recourse when things go wrong.

Viva Vintage!

Marks & Spencer has announced that to celebrate its 125th anniversary year, it will exhibit the highlights from its extensive archive collection in partnership with the University of Leeds. Through the exhibition Marks & Spencer will demonstrate how its designs have been woven into the social and cultural fabric of British life. Undoubtedly the M&S archive will have influenced British fashion.

Vintage designs are an increasing source of inspiration for modern designers. For example, this season, as reported in Vogue, the Eighties is a strong trend seen in a number of designer collections including Moschino, Balmain, Giles, Stella McCartney, Julien Macdonald and Gucci.

Fashionista notes that while, it is usually safe for designers to take inspiration from vintage designs that are sufficiently old that any relevant protection has expired (10-15 years for UK unregistered designs or 25 years for copyright works exploited by an industrial process) for well-known prints, it is conceivable that the original designer achieved a significant reputation in a particular design which could give rise to protection under the law of passing-off, if it led consumers to think there had been a collaboration between the retailer and the original designer, such as Celia Birtwell's recent collections for TopShop.

P.S. Those that currently supply M&S face some tough negotiations ahead. As Fashionista was writing this post, Drapers reported that M&S is looking to renegotiate terms with its European, South American and Far East suppliers in a bid to compensate for the weak sterling. For once, there is an advantage to being British!