Retail Rivalry:
Consignment Vendors,
Secured Lenders Spar over Priority
Adispute arising from the bankruptcy cases of Sports Authority Holdings Inc. highlights
an issue that could be at the forefront
of upcoming retail bankruptcies and
should always be considered by parties
with credit exposure to distressed
retailers. The dispute centered on the
competing claims of Sports Authority’s
consignment vendors and its secured
lenders in goods delivered prepetition,
which had an aggregate invoice
cost of approximately $85 million.
Both constituencies claimed priority
in the goods and were willing to fight,
given the high stakes—the consignment
vendors faced relegation to the status of
unsecured creditors, while the lenders
were eager to strengthen a potentially
deficient collateral position. Although
ultimately settled, the vigorous
dispute illustrates the arguments and
considerations on both sides of the
issue and is instructive for industry
participants that may be involved in
future bankruptcies in the sector.
Consignment Arrangements
Consignment is an arrangement
in which the “seller,” or consignor,
delivers goods into the possession of
the “purchaser,” or consignee, for sale
or use by the consignee. The consignor
generally contracts to retain title to the
goods and defers payment from the
consignee until the consignee sells
or uses the goods. In some situations,
Consignment arrangements are
fairly common and often stress-
free. Consignors generally have
an expectation that they hold title
to the goods in the possession of
the consignee and have a priority
interest in the proceeds of those
BY ROBERT J. GAYDA, COUNSEL & MICHAEL V. TENENHAUS,
ASSOCIATE, SEWARD & KISSEL LLP
