Large retailers such as Macy's or Bloomingdales, obtain their inventory on consignment.
The brands that deliver their merchandise on consignment transfer only possession, not ownership, of their goods to the retailer.
That's what happened to our client, a fine jewelry designer, whose merchandise was on consignment with Neiman Marcus.
When Neiman Marcus filed for bankruptcy in May, our client found herself in a tricky situation. There was an imminent danger that her merchandise would become part of the bankruptcy estate, which would have cost her hundreds of thousands of dollars had Eleni not stepped in.
While some merchants were prepared and protected for a situation like this, others were not.
When agreeing to a consignment relationship with Neiman Marcus, our client did not have a proper contract in place memorializing the consignment relationship and her security interest on the consigned merchandise. She also did not file a UCC-1 Finance statement.
Our client found herself among hundreds of unsecured creditors at the bottom of the creditors ranking.
Upon reviewing thousands of pages from the bankruptcy proceedings, Eleni fought to have our client withdrawn.
On behalf of our client, Eleni managed to gain back all of the consigned merchandise, as well as the proceeds of items that were sold.
This merchant let out a big sigh of relief, as a large sum of money was no longer on the line.
Here's the lesson for all merchants entering into consignment relationships with retailers:
- Obtain a Written Contract:
- Be sure to obtain a written contract that memorializes the consignment relationship.
- File a UCC-1 financing statement before the delivery of your merchandise to the retailer
- The UCC-1 financing statement gives constructive notice to the creditors of the retailer that you maintain the title of your consigned merchandise. Merchants that file a UCC-1 are protected in the case of a retailer filing for bankruptcy.
COVID-19 has impacted large retailers like Neiman Marcus, causing many to declare bankruptcy. Merchants with consignment relationships need to remain alert and on their toes during this time.
We can help with contract reviews, filing UCC-1 statements, and advise you on all aspects of secured transactions and litigation.