Roberto Cavalli U.S. Subsidiary Filing For Chapter 7
Roberto Cavalli Spring 2019 Ready-To-Wear.
MILAN — The trouble at Roberto Cavalli continues! The luxury fashion house’s financial problems just got deeper as it seeks a new owner and goes through a restructuring plan with creditors.
Last summer 2018, DM Fashion Book reported that Roberto Cavalli was opened to new investors. The house’s owners were taking stock of the performance of the brand and are liking what they see, according to market sources. As a result, Italian private equity fund Clessidra SGR, which took control of the Florence-based brand in 2015, was said to be open to bringing in other investors to inject fresh capital and expand the fashion house (see it here).
Clessidra SGR SpA acquired 90 percent of the label in 2015, while Roberto Cavalli will retain the remaining 10% of his company (see it here).
February 2019, we exclusively report that a Roberto Cavalli sale is approaching. And from the looks of it, Philipp Plein could be the new owner (see it here).
On April 1, 2019, news broke that Paul Surridge has resigned, or is close to taking that step, leaving his role as creative director of the Roberto Cavalli brand. An official announcement is expected to come soon (see it here).
A spokesman over the weekend said the company’s U.S. subsidiary, operating under the ArtFashion Corp. moniker, is filing for Chapter 7 this week.
This follows the announcement that day that Roberto Cavalli SpA’s board had decided to file a restructuring plan with the Court of Milan that would allow it to continue to operate while holding discussions with creditors under the so-called process of “composition with creditors.”
On the evening of March 29, all U.S. stores ceased operations, going out of business starting from the following day. Merchandise and store keys were taken into custody by a security company to be handed over to the trustee next week.
There were seven directly operated stores, one corner and four outlets in the U.S., all closed on March 29. The American market accounted for 17 percent of consolidated sales or 22 percent of direct sales.
The U.S. e-commerce operation is suspended until logistic services can be managed out of Europe, said the spokesman.
All employees were informed on Friday evening and contracts have been terminated. “The final payroll activities are in process to be paid by this week and final paychecks and severance payments will be handed over on April 3,” explained the spokesman.
ArtFashion Corp. employed 93 people, all of whom were let go. The U.S. branch’s chief executive officer Salvatore Tramuto has resigned, together with the company’s senior management, but the team is working to finalize the procedure of the filing.
A U.S.-based source lamented that the Italian company “cut all ties with the American subsidiary when the sale [of Roberto Cavalli SpA] did not go through, rendering the company in the U.S. insolvent. They knew for months that we were running out of money and that this could happen, but they did not inform us. They are our financial support and when they pulled out, that left the American company with no money and we were told to declare Chapter 7. Employees were let go without notice on Friday.” The source accused of a “lack of investments in the company and in marketing.”
Responding to these claims, the spokesman said “Roberto Cavalli has applied for a restructuring plan to seek an agreement with creditors in order to protect the company during the sale process.” As a consequence, “this led to the suspension of the cash pooling mechanism related to the restructuring plan, which granted financial support to the loss-making U.S. entity ArtFashion Corp.” The estimated loss last year amounted to $17.8 million after years of continued losses, he said, “leaving no other option than to file for Chapter 7 and to close the operations in the U.S. with immediate effect.”
“I understand the stress of ArtFashion’s employees,” responded a source close to the American company, “but there is nothing different that the Italian management could have done. With the end of the cash pooling agreement,” and in view of the restructuring plan with creditors for the Italian company, “the best they could do was to ensure all salaries and severance were paid to the last day. On top of that, it was important to secure all stores and company properties for the trustee to maximize the existing assets. That was done with the support of a security company. I don’t know if the security firm acted too firmly, or if some personal sensitivities were hurt. And, I do realize that in this situation all individuals would want to know as far in advance as possible in order to manage their personal life decisions. Unfortunately, due to the specific situation, it wasn’t possible to do otherwise.”
ArtFashion Company in 2017 registered a loss of $3.8 million and Roberto Cavalli SpA reported that year a market contribution of around $15.6 million.
Last year, ArtFashion Company registered a loss of $5.1 million euros, with a market contribution by the Italian group of around $12.7 million.
As of Dec. 31, the Italian group’s debt toward the banks stood at 35 million euros.
Last year, a source said Cavalli owner Clessidra injected 15 million euros in the group through two capital increases.
One Milan-based source said Clessidra cannot legally channel any additional investment in Cavalli because it has “reached its limit as per its statute. Clessidra has invested around 450 million euros, estimated the source, and around half of that went to Cavalli the designer, who retains 10 percent of the company.”
As reported, on Friday, the Cavalli board said the decision of the restructuring plan comes despite ongoing discussions with shareholders and potential investors “with the resources necessary to overcome its current state of financial difficulties.”
“Through this request, the company intends to utilize a well-defined legal mechanism arranged by the legislator to manage and overcome critical phases that could also lead to the suspension of some activities in foreign countries,” stated the company.
The Court of Milan will examine the application and “define a period of time during which the company will keep an open dialogue with all the subjects and competent authorities to define the details of the possible next steps to be carried out.”
Photos Credit: WWD