The collapse of fashion retailer Missguided prompted official complaints to the Insolvency Service from suppliers who have alleged that the online brand continued trading and ordering new supply despite the prospect of insolvency. Alex Jay spoke to the Guardian and Yahoo! Finance when the news first broke about what the retailer going into administration could mean for suppliers, and the potential for legal action.
Missguided called in administrators after suppliers issued a winding-up petition, but will continue trading while insolvency specialists seek to sell the business and its assets. More than 80 Missguided employees were made redundant on Monday 30 May. Some have reported that they learned about the job losses via an automated message, in similar circumstances to the mass sackings carried out by P&O earlier this year.
A ripple effect?
As well as Missguided’s own employees, suppliers will also be affected by the company going into administration. Three of Missguided’s suppliers warned they were at risk of going bust according to a report in the i newspaper. The withdrawal of government-backed programmes including the furlough scheme, as well as the reopening of physical stores to compete once again with online shopping, have both had a role in the retailer’s failure.
Alex spoke to Yahoo! Finance: “Retail has been under pressure for some time, but the problems have been masked by Covid-19 support measures. The withdrawing of these measures and timing of retail collapses is no co-incidence.
“The Missguided collapse also has potential to create a ripple effect, given reports of suppliers owed sums in excess of £2m, which may now be irrecoverable no doubt causing major issues further own the supply chain.”
Hundreds of factory workers in the UK have lost their jobs as the demand for the garments produced has now dried up. Campaigners have suggested that some Leicester factories have relied solely on Missguided for its business.
The basis for a potential claim
According to the Guardian, “One supplier said he was considering legal action as he believed Missguided could have acted fraudulently if it continued to place orders while “administration was on the horizon”. Two suppliers said they had been told by the firm that it was “business as usual” less than six weeks ago.”
The owner of supplier Moku, Nadeem Arshad, said his business was owed almost £500,000 and was seeking legal advice; another said Missguided had “bought garments from us in the last three months knowing the company was in trouble, with no thoughts of all the costs behind the making of our products”.
The Guardian asked for Alex’s perspective on this. He said: “Where a company carries on trading when its directors know there is no reasonable prospect of avoiding insolvency, then that can form the grounds for a claim.
“The question will be whether the continued trading has increased the overall deficit owed by the company to its creditors as a whole – in other words, have the directors made the position worse by keeping the company alive for longer than they should in the hope of turning the business around. If they have done that, then claims may well be pursued.”
What next after the buyout by Frasers Group?
Rival retailers Boohoo, Asos and JD Sports have previously been linked with pre-pack administration takeover bids, following Alteri Investors’ acquisition of a 50% stake in Missguided in December 2021. The day after administrators were appointed, Frasers Group announced it had acquired Missguided, which will be operated by administrators for a transition period of around two months, after which it will continue as a standalone brand within the group.
What does this mean for potential legal claims? Alex explained: “It is good news that Frasers Group has bought the Missguided business, as this will preserve jobs and the value of the business in the long run.
This will not, however, save the Missguided directors from scrutiny if they have engaged in wrongful trading.”
Discussion on The Student Lawyer Podcast
Alex joined Stephanie Anais on The Student Lawyer Podcast in July to further discuss the collapse of Missguided from an insolvency point of view, and talk about the commercial challenges that the company faced in the lead up to its fall into administration.
Their conversation covered topics including:
- Missguided’s commercial challenges, legal difficulties, and the directors duties
- Could the collapse have been mitigated? The importance of knowing your client (“KYC”) and commercial awareness
- Government schemes which aid distressed companies – the Covid-19 rent moratorium and employee furlough
- The Frasers Group buying Missguided out of administration via a pre pack administration deal
- Legal action and claims made by Missguided’s suppliers, unsecured claims and wrongful trading
- Pursuing wrongful trading claims
- Order of priority of creditors in administration
- Is it lawful to be sacked via automated telephone message?
- Key takeaways that online retailers should consider
You can listen to the full podcast here.
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