Page 2 - Corporate Restructuring & Bankruptcy

S2 | MONDAY, JUNE 13, 2016 | Corporate Restructuring & Bankruptcy
| NYLJ.COM
‘Sports Authority’ Tackles Issues Of Title to Consigned Goods
BY DAVID M. BASS
AND DAVID W. GIATTINO
The scope of Article 9 is broad: It applies to any “transaction, regardless of its form, that creates a security interest in personal property or fixtures by contract.”1 But as many vendors are learning in the Sports Authority bankruptcy,2 Article 9 is so broad that it also can apply to a consignment and absent perfection of that interest (e.g., through the filing of a financing statement), the fact that a consignor purports to retain title to goods will do nothing to protect it against the rights of a debtor as a hypotheti- cal lien creditor (or against the priority of a secured creditor having a perfected lien on a debtor’s inventory).
Background
On March 2, 2016, Sports Authority Hold- ings and six of its subsidiaries, which sold sporting goods and athletic apparel, com- menced cases under Chapter 11 of the Bank- ruptcy Code. In connection with the filing, the debtors requested authority to sell approxi- mately $85 million in consigned goods free and clear of all interests, including those of consignors, under §363(f) of the Bankruptcy Code. The consignors opposed the request, arguing, generally, that the debtors could not sell consigned goods because they were not property of the debtors’ estates. In sum, they argued:
1. They (the consignors) retained title to the consigned goods, and
2. Article 9 does not affect consignor- consignee relationships.
What these arguments ignore is that a con- signee’s purported retention of “title” does not, in and of itself, remove the transaction from the purview of Article 9 and that Article 9 does, in fact, govern the relationship between consignors and debtors as hypothetical lien creditors if the transactions are:
1. “Consignments,” as §9-102(a)(20) defines them, or
DAVID M. BASS is a member of Cole Schotz in the firm’s bankruptcy and corporate restructuring group. DAVID W. GIATTINO is an associate in the group.
Corporate Restructuring & Bankruptcy
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