Neiman Marcus in The Shops at Hudson Yards is close to declaring bankruptcy due to the effects of the COVID-19 pandemic forcing closures across America, New York, NY May 1, 2020. (Anthony Behar/Sipa USA)(Sipa via AP Images)

As Neiman’s bankruptcy proceedings move toward a resolution, many consignment vendors are still waiting to hear about payments. 

A number of consignment vendors who had shipped products to the luxury retailer before its  bankruptcy began in May are still waiting to learn if they’ll be paid for those goods, or if they’ll be able to recover items that haven’t been sold. 

After last week’s tentative resolution in the central dispute in the bankruptcy, which involved the retailer’s controversial handling of the Mytheresa web site, consignment vendors are expecting the retailer will turn to their questions before a deadline this week.  

A representative for Neiman’s declined to comment. 

The handling of consignment goods — apparel, accessories and jewelry that are shipped to a retailer, but still owned by the vendors in question — can be contentious in retail bankruptcies. 

There’s often a risk of consignment goods being treated as part of the bankrupt company’s estate, which would potentially usurp ownership from vendors. During a bankruptcy, a company’s lenders also often seek to place liens on inventory, which may include goods shipped on consignment. 

In the case of Neiman’s bankruptcy, vendors acted early to try to ensure that consigned goods would not be absorbed into the retailer’s inventory and wind up being used as collateral for a debtor-in-possession loan. 

An ad hoc group of consignment vendors in the case had negotiated a provision in the company’s DIP agreement stating that lenders cannot place liens on consigned merchandise, and that the proceeds from the sale of any merchandise consigned to Neiman’s has to be escrowed until the retailer decides if it wants to challenge the consignor status of specific vendors.  

“Every possible piece of collateral that exists in the universe, [lenders] want to support their liens and any financing they provide,” said Joseph Moldovan, who chairs the business solutions, restructuring and governance practice at Morrison Cohen LLP, and who represents a number of creditors, including trade vendors, in the Neiman’s bankruptcy. 

“Normally, the debtor has no problem with that, except when you have consignment merchandise, it’s not yours to give,” he said. “So the consignors do a fire drill at the start of the case to say, ‘whoa, slow down, you can’t lend against our goods, they don’t belong to the company.’”  

Neiman’s has until later this week to object to the validity of the consignors, after the Texas bankruptcy court overseeing the case granted it a short deadline extension. If Neiman’s doesn’t file any objections to the consignors’ status, which could turn out to be the case, the consignors’ status would be treated as valid, and they would get paid.

This dispute applies to consignment goods that were shipped before the bankruptcy began. Transactions that take place during a company’s bankruptcy proceedings are treated differently — as administrative claims that are generally entitled to full repayment. 

Fashion retailers tend to have a sizable amount of inventory shipped on consignment. Neiman Marcus Group Ltd. LLC had consigned goods “with a cost basis of approximately $370.2 million and $393.1 million,” as of July 2018 and July 2017, respectively, according to a 10-K filing with the U.S. Securities and Exchange Commission in 2018. 

Bankruptcy attorneys generally also advise consignment vendors to file UCC paperwork, under the uniform commercial code, in the state where the retailer is incorporated, before shipping the products.   

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