Shareholders and employees plan to sue Farfetch after an ‘opaque’ rescue deal wiped out their stakes.
Hundreds of retail investors and workers are preparing to take legal action after losing millions of pounds when Korea’s Coupang Group bought the luxury fashion platform.
Farfetch – founded in London in 2007 by Portuguese entrepreneur Jose Neves – is a designer brand marketplace once hailed as a British business success story.
The e-commerce business floated in New York in September 2018 and its value peaked at around £16billion in 2021, buoyed by the popularity of online shopping during the pandemic.
But by the time it was teetering on the brink of collapse last year, Farfetch’s shares had tumbled 97 per cent from their listing price and it had a market capitalisation of just £175million.
Unfashionable: Under the rescue plan, Farfetch founder Jose Neves (pictured) was left as the only board member
In December, the company sold the business to Coupang – the so-called Amazon of Asia – in a rescue deal that was completed last month.
Investors are preparing a legal case against Farfetch, claiming the transaction was ‘opaque’.
They have also raised concerns about the seemingly rapid decline of a company they believed to be in good financial health.
A spokesman for the group, which includes current and former Farfetch staff, said: ‘We have significant concerns about the opaque way in which the Coupang deal took place.
‘Hundreds of people have lost life-altering amounts of money.’
The firm was loss-making and concerns were raised about its debt levels and the viability of its business model when many designers are tightening control over distribution.
The company was also hit by a global slowdown in luxury goods spending as the super-rich tightened their belts.
But the first clear sign that Farfetch was in serious trouble emerged at the end of November, the day before it was due to publish its third quarter results.
Farfetch issued a shock announcement that it would not post a financial update as planned and warned that ‘any prior forecasts or guidance should no longer be relied upon’.
Less than a month later, on December 18, Farfetch said that after a ‘thorough and extensive process’, it was unable to ‘secure additional liquidity’ and could not continue as a going concern.
It announced the planned sale of the business to Coupang, which, together with investment firm Greenoaks Capital Partners, provided a £398million bridging loan to allow it to keep trading.
Crash: By the time Farfetch was teetering on the brink of collapse last year, its shares had tumbled 97% from their listing price and it had a market capitalisation of just £175m
The terms of the deal included an £800million exclusivity clause – meaning competitors would have to pay a fee to make a rival bid.
And it said that shareholders and bondholders would ‘not recover any of their outstanding investments’ following the sale.
All of the independent directors resigned when the deal was announced, leaving Neves, 49, as the chairman, chief executive and sole board member.
Coupang – an e-commerce giant based in Seoul – issued a statement last month which announced the completion of the pre-pack administration deal last month.
Outraged shareholders – who claim they have lost tens of millions of pounds – are preparing to take legal action to try to recoup their investments.
The group – who range from junior employees to executives – claim that they were handed share options in lieu of bonuses and pay rises.
According to the group, the Restricted Stock Units – which are a type of stock-based staff compensation – increased employee tax burdens, even if they were never cashed out.
‘Many people have been working for Farfetch for years in the same role with no increase to their base salary and a share scheme which effectively increased employee’s income with virtual money. These shares are now worthless,’ the spokesman said.
‘We are in discussions with lawyers and are actively laying the groundwork for action against Farfetch with the intent of restoring justice and reclaiming at least some of the millions of dollars worth of value that has been lost.’
A separate group of bondholders – owning 50 per cent of Farfetch’s 2027 bonds – is also taking action against the company.
They have filed a ‘winding-up petition’ in the Cayman Islands in an attempt to liquidate its holding company.
According to the petition, the bondholders are demanding the appointment of independent liquidators, their money back and an investigation into the company’s collapse.
The group of institutional investors has accused Farfetch of a ‘lack of transparency and corporate governance’, saying the sales process ‘raised significant concerns’.
Farfetch declined to comment.
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