Dion Lee sale "likely" as administrators preserve business, jobs

The news is promising for the renowned group, which is sold in more than 80 of the world’s most exclusive retailers including Net-A-Porter, Selfridges and Lane Crawford, and whose clothing, a corset, was sported by Taylor Swift at the Super Bowl this year.

The second report to creditors attributes the fashion house's difficulties to ongoing capital funding reliance for its unprofitable operations, with more than $22 million in capital investments since late 2021 by Cue Clothing Co's Levis family, which acquired a stake in Dion Lee via their brand in 2013.

Administrators Antony Resnick and Henry Kwok of dVT Solvency Solutions explain that after their appointment on 22 May, it soon became clear that Dion Lee's business was "significantly more valuable as a going concern than the alternative of immedi ately being wound up", and trading resumed the following day.

This meant that its seven stores in Australia, one store in Miami, Florida, and online stores could continue to sell product while the administrators set up arrangements with landlords and suppliers to ensure operations could function as per normal.

There were 67 staff members in total at the time of the appointment, of which 26 were full-time.

Seven employees were stood down, although some were re-employed around three weeks later to "accommodate the anticipated increase in sales from the rollout of an aggressive markdown stock sale campaign that went live on Wednesday, 5 June".

The employment of a further four staff has been terminated since appointment as well, of whom two had resigned and given notice before the administrators came on the scene.

The administrators claim that the ongoing trading of the businesses has assisted in preserving the Dion Lee brand globally, as well as business operations and jobs while maximising the recovery of pre-appointment debtors.

Between 22 May and 14 June the group recorded revenue of more than $286,000 and expenses just shy of $165,000. But with adjustments for liabilities such as superannuation, pay as you go (PAYG) tax and rent, the estimated surplus for the period is just $9,178. 

The company's unpaid superannuation, annual leave and long service leave balances are worth approximately $368,727, and this remains a priority unsecured claim against the group.
Administrators add that ongoing trading has enabled an orderly expressions of interest (EOI) campaign that will likely lead to the completion of a sale.

Following the EOI call-out on 27 May, nine non-disclosure agreements were issued to interested parties, of which seven were executed. The first cab off the rank on 3 June was an interested party that had been in discussions with Dion Lee's CEO James Miller, but the administrators found the first offer was "not acceptable to us in its form and value".

The next day, another party put forward an expression of interest (EOI), and following due diligence this resulted in a non-binding expression of intent to buy at an indicative price on 12 June. Active negotiations continue with this party, hence the recommendation to adjourn the creditors' meeting by more than six weeks.

The administrators argue that because the form of the sale transaction is yet to be determined, in the absence of a Deed of Company Arrangement (DOCA) there would be no option at a creditors' meeting but to liquidate assets, which they claim would not be in the interests of creditors.

Preliminary estimates of claims from secured creditors are currently at more than $29 million, of which entities affiliated with the Levis family comprise the largest share, and the Commonwealth Bank of Australia (ASX: CBA) has an estimated claim amount of more than $7 million.

Of the $5.3 million in estimated debts to unsecured creditors, for whom a dividend has been deemed unlikely, the largest for an unrelated party is a Milan-based global network of showrooms called TwentyFourSeven SRL with an outstanding debt of approximately $707,000.

The Australian Tax Office (ATO) is estimated to be owed around $533,000, while the stock at the Sydney Warehouse is subject to a warehousemen’s lien worth around $1.4 million.

"It is our understanding that 95 per cent of the stock is subject to this encumbrance for a debt owed to the landlord," the administrators said.

"We are currently in discussions with the landlord to reach a commercial settlement with the landlord with respect to this stock, for the benefit of the creditors of the administration."

In a statement given to Business News Australia, Resnick says the focus from day one has been to retain the value in the brand and business through a sale process.

"We are making very good progress on that front and  we are fully focused on having it proceed  for the benefit of all parties. Stores continue to trade as part of keeping continuity and goodwill around the brand," he says.