By NEIL HARTNELL
Tribune Business Editor
Peter Nygard’s global fashion empire has been plunged into financial crisis after court-appointed receivers this week took over its affairs following recent sex trafficking allegations against the tycoon.
The claims against the Lyford Cay resident, which he has vehemently denied, were cited by the Nygard Group’s lenders as a key factor behind their decision to successfully petition the courts for the appointment of a receiver over business interests has has spent decades building.
Two US-based financiers, White Oak Commercial Finance and Second Avenue Capital Partners, are alleging in court papers that Mr Nygard’s fashion empire breached the conditions of a $40m loan agreement by failing to promptly disclose the lawsuit where ten girls made allegations of rape and sexual assault against him.
This was swiftly followed by the Federal Bureau of Investigation (FBI) and New York Police Department raid on Nygard Group’s New York and California offices, which resulted in its largest customer, Dillard’s, dropping the Canadian’s empire as a supplier.
White Oak and Second Avenue alleged that this represented a further default under the loan agreement, for which $25.87m is allegedly outstanding and owing, due to Dillard’s accounting for 67 percent - more than two-thirds - of Nygard Group’s third party wholesale group.
Richter Advisory Group, which was appointed as the Nygard Group’s receiver by the Canadian courts on Wednesday, has moved swiftly to seek Chapter 15 recognition from the southern New York bankruptcy court so it can protect its assets from legal actions by creditors said to be owed a combined $60.551m.
New York court filings seen by Tribune Business allege that White Oak and South Avenue’s loan arrangement with the Nygard Group ran into problems almost immediately after the deal was sealed on December 30, 2019. The lenders were to male “formula-based revolving loans not to exceed $40m” to Mr Nygard’s US companies, which were secured on his fashion empire’s assets and guaranteed by the Canadian operation.
“Almost immediately after closing the credit facility, on or about January 3, 2020, the debtors committed various events of default under the credit agreement,” Richter Advisory alleged in court papers.
The breaches, it alleged, included “providing the lenders with cash flow forecasts and funding requests that contemplated a cash need that was several millions of dollars in excess of the amount available pursuant to the credit agreement’s borrowing base calculation”.
Richter Advisory added: “The lenders, with the assistance of Richter and despite limited co-operation from the debtors and their principal, Peter Nygard, made significant efforts to understand the debtors’ increased funding needs and potential solutions for the Nygard Group’s liquidity crisis.
“In the midst of the foregoing, the lenders learned that Peter Nygard and several of the [Nygard Group’s US companies] had been sued in a class action lawsuit in the US District Court for the Southern District of New York.......
“The class action lawsuit alleges, among other things, that Mr Nygard raped and sexually assaulted multiple children and women, and that the [US companies] knowingly aided and abetted him in a decades-long sex-trafficking scheme.
“The debtors advised White Oak of the class action lawsuit nearly one week after its issuance, in breach of the credit agreement’s requirement that the Nygard Group promptly notify White Oak of any litigation that could reasonably be expected to result in a material adverse effect on the business.”
Then came the FBI and New York police raid, and the loss of the Dillard’s account, where it “had refused current deliveries, cancelled all existing orders and suspended all future purchases from the Nygard Group”. Mr Nygard announced he would step down from his fashion empire, and sell it, the very same day.
However, the fact that Mr Nygard and his fashion brand are virtually one and the same is likely to complicate any sale. The two are indivisible, and court documents obtained by Tribune Business reveal that the Nygard Group had sought protection from White Oak/South Avenue and their other creditors under the Canadian Bankruptcy and Insolvency Act.
The well-known Bahamas resident, who has been locked in a decade-long feud with his Lyford Cay neighbour, Louis Bacon, had even managed to hold off the lenders’ receivership bid in several Canadian court hearings.
However, what appears to have sealed the present fate of Mr Nygard’s business empire is the assertion by A. Farber & Partners, the so-called “proposal trustee” supporting its bankruptcy protection application, that it “is not in a position to advise that the Nygard Group is acting with good faith or due diligence at this time”.
This was seized on by Oak White and South Avenue in their March 18, 2020, receivership application where they reiterated that Mr Nygard’s business was “acting in bad faith and continues to breach court orders”.
Besides failing “to provide sufficient information” to A. Farber & Partners, the lenders said Nygard Group had failed to come up with a plan to fund its operations after struggling to meet staff payroll. They added that the receiver was “urgently needed”, and accused Mr Nygard’s companies of “effectively stonewalling”.
Giving an insight into the size of the tycoon’s business, the court documents state that besides its Winnipeg headquarters it has “offices in New York City, Shanghai (where its research and design teams are based), Los Angeles, California (where its US logistics operations are based), and Toronto (where its international sales and marketing team is based).
“It has three distribution centres located in Los Angeles (leased), and Toronto and Winnipeg. The Nygard Group sources inventory from third-party garment manufacturers in Jordan, Bangladesh, Indonesia, Vietnam and China. The Nygard Group has multiple product lines and fashion brands, including Peter Nygard Collections, Bianca Nygard, Nygard SLIMS, ALIA, ADX, and TanJay.
“The Nygard Group employs approximately 1,450 people worldwide, of whom approximately 100 are located in the US. The Nygard Group operates 167 retail stores in Canada and two retail stores in the US, and upon information and belief, supplied other retailers such as Dillard’s and Costco Wholesale Canada until recently.”