After the stunning fall of Farfetch – the luxury e-commerce company once heavily touted by the fashion industry’s top media outlets as the future of fashion retail – came the lawsuits. Even before Farfetch announced that it would not present its quarterly earnings in November 2023 and that all previously issued financial guidance “should no longer be relied upon,” the final red flag ahead of the rescue buyout by South Korean retailer Coupang, the momentum for a string of legal disputes targeting the company and its management had started to gather.
A key question at the heart of currently-pending class action complaints, creditor challenges, and a liquidation investigation: What role did Farfetch’s executives – namely, founder and former CEO José Neves, former finance chief Elliot Jordan, and former Group President Stephanie Phair – play in the striking demise of a company that abruptly fell from a valuation of more than $6 billion to the brink of bankruptcy over the course of a several years.
This is the inquiry that lies at the heart of the proposed class action complaint that was filed against Neves, Jordan, and Phair in a federal court in Maryland in October 2023, as well as several similar suits filed in the United States. In the since-consolidated securities fraud case that is now playing out before the U.S. District Court for the Southern District of New York, former Farfetch shareholders accuse Neves, Jordan, and Phair of “systematically misleading investors about the company’s true financial health, business model, and growth prospects,” thereby, inflating Farfetch’s formerly Nasdaq-traded stock.
Additionally, the plaintiffs claim that Neves and co. engaged in meaningful mismanagement of the company, as evidenced by their pursuit of a series of high-cost acquisitions that were poorly integrated into Farfetch’s business, creating operational inefficiencies and adding substantial costs.
Neves, Jordan, and Phair have denied that claims lodged against them, stating in a filing in December, for instance, that the shareholder plaintiffs “lack any factual basis for [their] theory that Farfetch’s executives intentionally misled investors about nearly every aspect of [the company’s] business for two years” before Farfetch was liquidated late last year. In fact, they maintain that Farfetch’s executives, including Neves and Jordan, “substantially increased their holdings of Farfetch stock during the Class Period, which undermines any inference of fraudulent intent.” (Emphasis courtesy of the defendants).
An Ongoing Investigation in the UK
The legal woes that are plaguing Farfetch and its former leadership are not limited to lawsuits in the United States. In addition to the stateside securities fraud case, Neves, Jordan, and Phair are entangled in an investigation that is playing out before the High Court in England in tandem with liquidation proceedings before the Grand Court of the Cayman Islands. According to Alvarez & Marsal’s Christopher Kennedy and Alexander Lawson, the court-appointed liquidators, Farfetch “may have been seriously mis-managed by members of [its] senior management (including Mr. Neves, Ms. Phair and Mr. Jordan)” ahead of the Coupang deal in December 2023.
In one of the most recent rounds of the clash in England, Kennedy and Lawson accused Neves, Jordan, and Phair of refusing to respond to requests for “critical” documents and information that is essential to their investigation into the company’s decline.
Liquidators sought intervention from the court to compel the former Farfetch directors to provide information about the circumstances surrounding the Coupang sale, which they claim resulted in Farfetch “writing off over US$1 billion in Intercompany Loans, losing ownership and interests in its business, all without public explanation,” despite public assurances from Farfetch and its directors as recently as August 2023 that the company was in good financial health. They are also seeking information about “why there was (or it is claimed that there was) such a rapid and drastic deterioration in Farfetch’s finances” and what efforts, if any, were made “to market the Farfetch business (or parts of the business)” before entering into the agreement with Coupang and/or following the company’s announcement canceling its earnings report in late 2023.
In a decision on December 20, Jordan and Phair scored a temporary victory when Mr. Justice Thompsell of the Chancery Division of the High Court of England and Wales ruled that the liquidators’ request to require them to participate in oral examinations under oath – in addition to providing written testimony – was premature. The court held that the liquidators had not yet exhausted all of the documentary evidence they already possessed. Since the liquidators “suspect the [directors] of wrongdoing or mismanagement, (given that the existing available sources of information have not yet been exploited), it would be unfair to subject them to oral examination” at this stage. (Note: The court did agree to order that the Farfetch-related information on Phair’s mobile phone be maintained in light of “the possibility that it may be required to be searched as a result of a further order.”)
> “This judgment acts as a warning to insolvency office-holders to carefully consider the timing of an application for oral examination,” Kirsten Fulton-Fleming, a senior associate at Taylor Wessing, stated in a note. “The courts are alive to the dangers of oppression in requiring a person suspected of wrongdoing to submit to an oral examination before proceedings have been brought against them and will aim to strike a balance between the reasonable requirements of an office-holder and the risk of oppression.”
Justice Thompsell did, however, leave the door open to oral testimony in the event that the parties’ written responses are inadequate.
As for Neves, who argued that argued that he was outside the jurisdiction of the English court as he now resides in Brazil, the court held that it would need to examine the issue of jurisdiction further before deciding on the liquidators bid for oral testimony.
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