(Source – ScrilNow)
2023 has proven to be a challenging year for retailers, with the lingering effects of the COVID-19 pandemic pushing several big-name companies into dire straits. The zulily struggles of Bed Bath & Beyond, Tuesday Morning, and Christmas Tree Shops, among others, followed a familiar pattern—sales failed to reach levels needed to address mounting debts incurred during the pandemic-related closures, leading to the inevitable step of filing for Chapter 11 bankruptcy.
The traditional bankruptcy process, while unsightly, generally offers some level of protection for consumers. During the liquidation phase, there’s often a window where returns and gift cards are honored, providing a measure of security for customers. However, not all retail closures follow this predictable path, as seen in the abrupt disappearance of Mitchell Gold + Bob Williams, which left customers with unfulfilled orders and unanswered queries.
Introducing an element of uncertainty for its patrons
A similar fate has befallen Zulily, a prominent online clothing retailer, signaling distress for its loyal customer base. In December, Zulily initiated a going-out-of-business sale following extensive layoffs, leaving customers in the dark about the specifics of the closure. Contrary to expectations, the company did not file for bankruptcy, introducing an element of uncertainty for its patrons.
Recently, Zulily made an announcement that clarified its fate: “Douglas Wilson Companies announced that, on December 22, 2023, Zulily and its parent company entered into an Assignment for the Benefit of Creditors (ABC) and transferred all its assets to a third-party fiduciary, or ‘Assignee,’ who will liquidate these assets and conduct an orderly wind-down of the business.”
This move puts customers in a precarious position, as the ABC process offers them no rights. The liquidation effort, spearheaded by Douglas Wilson Companies on behalf of the Assignee, Zulily ABC, LLC, prioritizes creditors over customers in terms of recovering funds.
Zulily’s sudden closure and subsequent liquidation
An Assignment for the Benefit of Creditors (“ABC”) is a state statutory procedure where an economically troubled entity (Assignor) transfers its assets to an independent third party (Assignee) in trust. The Assignee is then responsible for distributing the proceeds of the asset sale to the assignor’s creditors based on legal priorities.
ABCs, while an alternative to traditional bankruptcy, leave customers with little recourse and no standing in the recovery hierarchy. Zulily’s sudden closure and subsequent liquidation underscore the uncertainties consumers face when a company takes an uncharted path to dissolution, leaving them without the protections typically afforded in more conventional bankruptcy scenarios.
