Retailer collapses owing as much as $58m

The eye-watering debt owed by an iconic fashion brand has been revealed as a court case regarding its collapse was thrown out.

A major Australian retail chain that was ordered into liquidation could have racked up a massive amount of debt — amounting to $58 million – as a court case launched by the company’s owner was recently thrown out.

News.com.au broke the news of Ally Fashion’s demise when it was ordered to be wound up by the Federal Court of Australia at the end of February due to insolvency, with liquidators moving quickly to shut down 51 stores and axe hundreds of jobs.

On Wednesday, the Supreme Court of NSW rejected a proposal to take back control of the company by Ally Fashion’s sole director, while an application for voluntary administrators to be appointed was also refused.

The fast fashion chain had 158 stores across Australia and an online store, as well as employing 1669 staff before its collapse.

Ally Fashion was ordered into court liquidation. Picture: Instagram

The chain has stores across New South Wales, Victoria, Queensland, South Australia and the Northern Territory.

The company’s director revealed in the recent court hearing that 340 workers had lost their job since the company’s demise.

Meanwhile, the liquidators revealed that “unsolicited” buyers have been circling Ally Fashion.

For the first time, it was revealed in the NSW court that Ally Fashion’s debt could sit at a staggering $58 million, according to the company’s director.

“Its trade creditors were owed in excess of $52.5 million; its Commonwealth and State taxes were overdue; it had overdue liabilities in respect of superannuation guarantee charge, rent (and) other expenses,” Justice Ashley Black noted as evidence given in an affidavit by the director.

Out of 158, stores, 51 were shuttered. Picture: Instagram

Ally Fashion also owed suppliers, including those providing the clothes, in excess of $41.9 million, according to the company’s director.

The chain’s owner proposed a Deed of Company Arrangement – or DOCA — where a portion of the debt would be paid to take back control of the company, with the terms laid out in court.

This included administrators nominated by the director to be appointed and a fund established comprising a payment of $500,000.

Then payments of $3.6 million would due in instalments of $150,000 per month over 24 months, commencing four months after the date of execution of the DOCA, the judgement said.

But it proposed the money to pay creditors would come from future profit generated from trading the business.

“That proposal had the consequence that the bulk of the DOCA contributions would only be received if the company had the capacity to make those payments in a 24-month period commencing four months after execution of the DOCA,” Justice Black noted.

He said it meant creditors would only have access to the $500,000 for repayment of the debts and any amounts paid later, although there was no guarantees on these sums being paid.

The owner applied to court to have voluntary administrators appointed. Picture: Instagram

Jeff Marsden and Duncan Clubb from BDO Sydney were appointed as liquidators of Ally Fashion.

Justice Black outlined concerns raised by Mr Marsden to the court about allowing the director to take back control of the company.

This included no evidence that Ally Fashion was capable of making the $150,000 monthly contributions under the DOCA, considering recent trading losses and the reduction of stores and employees, which would also likely have both revenue and cost implications.

“Mr Marsden also points to the significant delay in any payment to priority creditors under the DOCA proposal and notes that the DOCA proposal does not identify what security would be given by the company to secure its obligations under that proposal,” Justice Black said.

“He also points to a risk to future contributions to the deed fund under the DOCA proposal, where the company would be returned to (the director’s) control and the liquidators have identified possible breaches of directors’ duties in respect of (the director’s) previous management of the company.”

Hundreds of staff have been impacted by the collapse. Picture: Supplied

The liquidators revealed in court that the company may have been insolvent from late October 2024 and possibly earlier, but investigations were ongoing.

The lawyer for the company’s director had argued the DOCA should be allowed as the business was “substantial” and had been operating for 24 years, its closure would affect employees, landlords and suppliers who would “suffer”, that it would maximise Ally Fashion’s ability to continue and further negotiations over the terms of the DOCA would happen.

Ally Fashion currently continues to operate under the liquidators.

News.com.au reached out to BDO Sydney but the firm declined to comment.

The Australian fashion industry has taken a battering. Picture: Instagram

It comes at a time when the Australian fashion industry has taken an absolute battering with a number of high profile retailers collapsing amid the cost of living crisis.

Iconic fashion brand Jeanswest called in administrators on Wednesday to wind up the company’s 90 bricks-and-mortar stores, with 600 jobs set to go.

Mosaic Brands, which boasted iconic brands like Autograph, Noni B, Katies, Millers and Rivers, fell into liquidation and could not find a buyer with hundreds of stores closed as a result.

Queensland University of Technology Business School retail expert Professor Gary Mortimer previously told news.com.au that it was evident discretionary spending by Aussies had been reduced as a result of the cost of living crisis and worryingly thousands of retail jobs had been lost.

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Originally published as Retailer collapses owing as much as $58m