Threading the needle: securing your interest when a fashion brand unravels

We’ve noticed a sense of unease creeping into the Australian fashion industry. The recent liquidation of industry darling Dion Lee, reportedly with liabilities nearing $35 million, has come off the heels of the near collapse of Tigerlily. While Tigerlily was saved by Seafolly’s purchase, Dion Lee hasn’t been so lucky, leaving unsecured creditors, reportedly with liabilities around $5.6 million, in a particularly precarious position.?

Not to worry. We’re not here to scare you with all doom and gloom as there’s already enough of that going around, see: the rise of “Recession Fashion”. Instead, we are here to make you feel more secure in the fashion world.

Our suggestion involves contracts and PPSR registration.

Did we lose you?

Phew. Stick with us and we’ll get you through the need-to-know as quickly as possible. We know you’ve got a Dion Lee archive sale to get to. When should you act? You should follow these tips anytime you're providing personal property before receiving full payment. This happens frequently in fashion, whether you’re supplying stock to retailers like David Jones or Myer, providing materials to designers, or even loaning goods to stylists or influencers.

Include a retention of title clause in your contract terms

The arrangements we’ve just described are called retention of title (RoT) arrangements. If you catch yourself in one of these, then make sure your contract includes a RoT clause. This clause will essentially state legal ownership of the goods (title) stays with the supplier until the supplier has been fully paid for those goods.

Perfect your interest on the PPSR

To enforce a RoT clause, you need to ‘perfect’ your security interest, typically done by registering it on the Personal Properties Security Register (PPSR).

The PPSR is a national noticeboard revealing security interests claimed against all personal property (think everything apart from land, buildings, and fixtures). By registering your security interests, other parties are put on notice about your stake in the goods and are prevented from claiming a right in those same goods.

PPSR registration may seem abstract, so here’s a real-world example to illustrate its importance. When UK luxury brand Matches collapsed, 190 brands tried to recover a total ￡22.8 million worth of stock through RoT claims. Most attempts failed and these brands had to watch their designs be sold at insultingly low prices without ever receiving any benefit. Now, if this happened in Australia, a PPSR registration could have been the solution.

Timing matters

The PPSR follows the "first in, best dressed" rule, with an exception of Purchase Money Security Interest (PMSI), relevant to arrangements like leasing, financing or RoT when there are outstanding payments due.

PMSIs generally gain an upper hand over other existing security interests. Most importantly, to gain priority status, you must register:

• before the goods are supplied (if they are of your customer’s inventory); or
• within 15 working days after the customer takes possession (if the goods are not inventory).

Don’t be like Dion Lee’s unsecured creditors. Take smart legal steps now so you have the security to focus on designing something we are all dying to see.

TL;DR: If you supply any goods before receiving full payment:

1.???? include a RoT clause in your terms;

2.???? figure out whether the stuff you’re supplying is part of the receiving party’s inventory (e.g. zippers, buttons, fabric);

3.????? make your contract enforceable by registering your interest on the PPSR within the necessary timeframe.

Have questions? We’re here to help.