Jeanswest Rescue Deal Offers Limited Recovery for Creditors

A last-minute deal aimed at rescuing Jeanswest plans to pay employees in full, but unsecured creditors are expected to receive only a minimal return after efforts to find a buyer were unsuccessful.

Jeanswest, the longtime Australian fashion retailer, has not secured a buyer despite an intensive sale process. The company entered administration in late March after revenue fell sharply from $61 million in the 2022 financial year to just $34 million so far this year. With stores closed and most of its stock cleared, the company is now relying on a rescue proposal from one of its directors in an attempt to avoid full liquidation.

Administrators from Pitcher Partners led an eight-week sales campaign in partnership with inventory specialists. Together, they liquidated Jeanswest's stock through current stores and online channels. This process generated $15.4 million, most of which was used to pay more than $4 million in staff entitlements. However, the company still faces significant liabilities totaling $61.3 million, including $25.3 million owed to a secured creditor and $8.8 million related to lease commitments.

According to the proposed rescue agreement, known as a Deed of Company Arrangement (DOCA), employee entitlements would be paid in full. However, most unsecured creditors would receive only a small portion of what they are owed, with returns expected to be no greater than 2 cents per dollar. Just $20,000 has been set aside for customers holding gift cards, even though nearly $776,000 worth were outstanding when administrators were appointed. Any claims exceeding that amount will be treated as unsecured debt and may receive less than half of their face value.

Payments under the plan will follow a strict order. Administrators will be the first to receive their fees, followed by employees, gift card holders and then a capped $250,000 allocated to unsecured creditors. Once the deed is executed, control of the business will return to the directors. The secured creditor, which is also Jeanswest’s parent company, is likely to recover only 1.4 cents on the dollar while any related-party creditors will receive no return.

The company's challenges mirror the broader difficulties affecting the Australian retail sector. Although several established retailers showed interest, no formal bids were submitted. Analysts believe this is largely due to Jeanswest's reliance on physical stores, many of which had become unprofitable, along with limited growth in digital channels. Gross profits were reduced by nearly half, dropping from $37 million in FY22 to $18.2 million recently. Online sales made up only 12% of overall revenue.

Founded in Perth in 1972, Jeanswest has been a well-known name in Australian retail for more than 50 years. The company last underwent a rescue in 2020 after it was acquired by Hong Kong-based Harbour Guidance. At the time of its most recent collapse, Jeanswest operated 87 stores across Australia and employed hundreds of people. Its wide retail footprint has ultimately become too difficult to maintain.

Source: The Australian, Ragtrader, The Nightly, Pitcher