Companies that supply garments for retailer La Senza are trying to push the company into bankruptcy because they say the lingerie chain isn’t paying its bills.
According to court documents, U.S. apparel manufacturer MGF Sourcing is seeking an involuntary petition against the owner of La Senza under Chapter 7 of the U.S. bankruptcy code.
Founded in Quebec in 1990, La Senza grew to become one of the biggest sellers of women’s underwear in Canada before being bought up by the owners of U.S. lingerie giant Victoria’s Secret in 2007.
In late 2019, La Senza’s owners then sold the company to a California-based private equity firm called Regent LP. As part of that deal, La Senza was supposed to secure a letter of credit from the previous owners that would guarantee payment for suppliers like MGF if they continued to send products to La Senza. According to court documents, that never happened, and MGF says La Senza now owes them almost $42 million for goods that have already been sent off to La Senza to sell.
“Despite MGF’s efforts to work in good faith with La Senza to find solutions, La Senza regularly disregarded its obligations and ultimately refused to provide MGF with adequate assurances of future performance,” MGF says in a court filing, adding that the retailer has become “increasingly infrequent” in its communications with its supplier.
“MGF also demanded that La Senza stop selling goods sourced by MGF and return them, but La Senza has not done so.”
According to court documents, two other La Senza creditors — Sri Lanka-based Ocean Lanka Ltd. and Teejay Lanka PLC — are also backing the petition, although they say they are owed far less: $731,805.50 for the former, and $195,209 for the latter.
According to its website, La Senza has 340 stores around the world, roughly one third of which are in Canada.
When companies are trying to restructure but plan to continue to operate in some form, they typically voluntarily file under Chapter 11 of the U.S. bankruptcy code. But MGF has petitioned the court under Chapter 7 of the code, a section of the law typically used by creditors trying to put other companies into liquidation to raise money to pay back what they owe.
“They’re trying to push the company,” retail consultant Bruce Winder said in an interview, “with the sole purpose of getting their money back.”
Winder said the suppliers have likely given up hope of having the company pay them back.
“They’re just trying to use the courts and use existing legislation to get enough suppliers on board, get it before a judge and try to push them eventually into Chapter 11.”
Winder says the lingerie business, like many other facets of retail, has been under pressure of late, hit by online competitors and debt loads creeping higher. At the time it was acquired by Regent, La Senza said it lost $40 million in the year 2018, on sales of roughly $250 million.
“It sounds like this business was starting to taper off anyway even before the acquisition,” Winder said. Regardless of how the underlying business is going, a court fight won’t be good for the company, he noted.
“Where there’s smoke there could be some fire,” he said. “This in itself is going to cause a panic with any other La Senza suppliers who [may now] either ask for cash up front or charge La Senza more because they’re insuring their receivable.
“Either way it’s not a good thing.”
Requests for comment from MGF, La Senza and the retail chain’s owner, Regent LP, were not returned on Thursday.