Farfetch Bond Holders Take Fight to Cayman Islands Court, Seek Liquidation of Holding Company

This story was updated on Feb. 8, 2024 at 6:30 a.m. EST.

LONDON Bond holders contesting the sale of Farfetch to Coupang have taken their battle to a Cayman Islands court.

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They are demanding more than $400 million in funds, and want the holding company that had been set up to facilitate Farfetch’s 2018 listing on the New York Stock Exchange, to be liquidated.

The bond holders, who are in possession of more than half of Farfetch’s 3.75 percent convertible senior notes, due in 2027, have filed a “winding-up petition” on the grounds that Farfetch Limited is unable to pay its debts.

According to a petition filed on Friday, the group wants independent, provisional liquidators, namely Alexander Lawson and Christopher Kennedy of the professional services firm Alvarez & Marsal, to be put in place immediately.

They also want their money back, which they say amounts to about $404 million.

They want the liquidators to take charge of Farfetch Limited immediately “and manage its interests in the interests of the creditors, which appear not to have been taken into account to date.”

The group, which is filing its petition under the name Wilmington Trust, argues that Farfetch Limited does not have a functioning or independent board of directors, and that the interests of the creditors have been ignored.

The bond holders said the liquidators need to be appointed right away so they can gain “unrestricted access” to all Farfetch assets and property.

The group wants to conduct “a substantive and independent investigation into Farfetch’s affairs, financial data and documentation and ensure the interests of the creditors” are protected.

“It is just and equitable that [Farfetch Limited] be wound up … so that independent liquidators can take control of the company, investigate the circumstances of its apparent rapid and unexplained failure, and manage the company’s affairs in the interests of its creditors,” the petition said.

It added that the 2027 notes are “due and payable,” and that they are owed about $404 million.

“The company has not paid that amount. The company has said that it cannot currently pay that amount, and that it does not expect to be able to pay any of that amount in the future, including as a result of the consummation of the Coupang sale,” the petition said.

Coupang and Farfetch both declined to comment.

However, Coupang had already flagged the proposed liquidation last December when it announced it was purchasing Farfetch out of administration.

At that time, Coupang said the Cayman Islands holding entity, which contains no assets, was expected to be liquidated as part of the de-listing of Farfetch from the NYSE.

It is understood the closure of the Cayman entity will have no impact on the operations or finances of Farfetch.

Last week, after the deal officially closed, the bond holders said they were exploring “possible litigation steps” as a result of the sale.

They argue that Coupang undervalued Farfetch, and that Farfetch was not transparent with regard to its financial difficulties in the months leading up to the fire sale on Dec. 18.

As reported, Farfetch was sold in a pre-pack administration deal that saw Coupang inject $500 million into the troubled company and take 100 percent ownership. As a result, all shareholders, including founder José Neves, saw their investments wiped out.

A pre-pack administration in the U.K. means that a rescuer for a troubled business is found, and a sale is negotiated before the administrators step in.

Last month, the bond holders argued that “allowing this transaction to complete fails to maximize the value of the assets of the company at a time when at least three other credible parties were publicly reported to be interested in all, or parts, of the business.”

The bond holders, who have combined assets under management of more than $1 trillion, said they have appointed Pallas Partners as legal counsel and Ducera Partners as financial advisers to pursue their case.

Last month the group said it was working “to urgently evaluate options to protect its interests in the face of the value destruction that it believes will be effected should the Coupang sale go ahead.”

As part of its action, the group declared a default of the 2027 notes, which means they are “immediately due and payable in full.”

The default arose from the suspension of trading and delisting of Farfetch from the New York Stock Exchange, which was imposed by the NYSE as a result of the proposed sale to Coupang.

In addition, the bond holders group said it has “serious concerns” about how Farfetch went from guiding the market to fiscal full-year liquidity of more than $800 million in August 2023, to a holding a distressed sale four months later.

It also noted that in August 2023, analyst consensus estimated Farfetch’s enterprise value to be in excess of $3 billion.

“As such, the group is seriously concerned by the rapid and unexplained deterioration in the financial position of Farfetch between August and December 2023,” the statement said.

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