Ally Fashion - Case Update

Jeffrey Marsden and Duncan Clubb of BDO, the liquidators of Australian fast fashion brand Ally Fashion, have successfully applied to put the company into voluntary administration after receiving a second DOCA from the company’s director.

We last wrote about this matter in March, when the Supreme Court of New South Wales rejected a bid by David Dai, the sole shareholder of Ally Fashion, to disrupt the company’s liquidation and instead have voluntary administrators appointed. Mr Dai, through his company Grandline Pty Ltd, is continuing to operate the Ally Fashion business in a reduced form, having negotiated a licence agreement with the liquidators.

The initial DOCA proposed by Mr Dai involved upfront funding of $500,000 (after which control would be handed back to Mr Dai) and longer-term contributions totalling $3.6 million tied to uncertain future trading, backed by security “to be provided by the company”. The DOCA also restricted the administrators from pursuing recovery actions.

The Court rejected Mr Dai’s application, finding that the liquidators had made a reasonable decision not to appoint administrators at such an early stage (only three weeks into the liquidation), but left it open to the liquidators to appoint administrators in the future should the appropriate circumstances arise.

After further negotiations with the liquidators, Mr Dai presented a second DOCA proposal which addressed the Court’s earlier concerns, particularly by increasing the upfront contribution to $700,000, defining the security (a general security agreement over Ally Fashion), specifying a fixed dividend of 25 cents in the dollar to unsecured creditors, and including oversight mechanisms such as quarterly reporting to administrators. The liquidators, supportive of the second DOCA proposal, brought an application to appoint themselves as voluntary administrators of Ally Fashion and deed administrators of any DOCA entered into during the voluntary administration.

The Court accepted the liquidators’ submissions that the second DOCA proposal was materially improved and in the best interests of creditors. In particular, it projected full repayment to priority creditors and a return to unsecured creditors which was superior to the estimated nil-to-5 cent recovery under a straight liquidation.

The Court emphasised the liquidators’ independence, experience, and deep familiarity with the company’s affairs, affirming that continuity and cost-efficiency justified their self-appointment. The Court also approved a suite of orders under section 447A of the Corporations Act 2001 to truncate the administration process: eliminating the need for a first creditors’ meeting, allowing reuse of previously submitted proofs of debt, and modifying timing and reporting requirements.

Read the decision HERE.

Professionals involved:

• Michael Rose of (instructed by Dentons) for the liquidators / administrators

• Piper Alderman for DDT Management and David Dai