John Varvatos has filed for bankruptcy. Listing assets of as much as $50 million and liabilities of at least $100 million, the New York-headquartered fashion company revealed its plans to sell to an affiliate of Lion Capital LLP, one of the company’s existing investors, “in order to ensure the business’s long-term success.” In order “to facilitate this transaction,” John Varvatos Enterprises said that it filed a voluntary petition for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Delaware on Wednesday.
The 20-year old fashion brand, which is known for “translating the best vintage looks and tailoring techniques into an original modern style” for men, asserted in a statement on Wednesday that the proposed sale to an affiliate of London-based Lion Capital “will be subject to approval of the bankruptcy court and may include a court-supervised auction in which other bidders may offer a higher price for the company’s assets.” Varvatos further states that the British private equity firm “remains confident in the long-term potential of the Varvatos business,” and has committed to providing debtor-in-possession financing (subject to court approval), which, “when combined with the company’s projected cash flows, is expected to support its operations during the restructuring process.”
In terms of the $100 million-plus that Varvatos owes to creditors, Bloomberg Law notes that “a group of class-action lawsuit claimants is the company’s largest unsecured creditor, with a claim of about $3.5 million.” The multi-million dollar sum stems from the class action lawsuit that Tessa Knox filed against Varvatos in a New York federal court on behalf of herself and similarly-situated female sales associates, accusing the brand of pay discrimination on the basis of gender.
Knox argued that it was John Varvatos company policy to provide a $12,000 clothing allowance for male sales associates so they could wear the brand’s apparel while working, as required by the same company policy. The problem, according to Knox: Neither she, nor any of the other women “who are currently employed, or were employed at any time after February 1, 2014, as sales associates at a John Varvatos-operated store in the U.S.,” were provided with the same benefit.
While female employees received a 50 percent discount to shop at Varvatos’s sister brand, AllSaints, the value of discount that was capped at $5,000 per year, Knox – who worked as a sales associate in Varvatos’ East Hampton, New York store from August 2016 to February 2017 – asserted, thereby, giving rise to claims under the federal Equal Pay Act.
In March, on the heels of a jury trial, Judge Gabriel Gorenstein, a federal magistrate judge for the U.S. District Court for the Southern District of New York, ordered that Varvatos pay over $3.5 million, including awards of liquidated and punitive damages. A representative for the brand stated in light of the jury verdict and subsequent court order, “John Varvatos Enterprises is fully committed to treating all employees fairly and equitably, and we do not discriminate between men and women in determining compensation. We respectfully disagree with the court’s decision and are considering all of our legal options.”
As for the bankruptcy filing, the brand’s eponymous founder stated on Monday, “We have taken decisive action to respond to the challenges that all retailers face in the present environment and we remain extremely confident that our brand, celebrating its 20th year in business, will emerge even stronger. We have a passionate team, a fierce global consumer following and a commitment to our customers, whom we expect to serve for many years to come.”
*The bankruptcy case is In re: John Varvatos Enterprises Inc. et al., 1:20-bk-11043, U.S. Bankruptcy Court for the District of Delaware.