Viewpoint: Last Resort: Sports Authority Bankruptcy Exposes Risk of Consignment Deals

Daily Bankruptcy Review

"If you look up the definition of "consignment sale" in the dictionary, it sounds simple. A vendor sends goods to a retailer to be sold in the retailer's store(s). Once the goods are sold, the retailer pays the vendor an agreed-on price. If the product isn't sold, the retailer sends the goods back to the vendor. Parties may enter consignment agreements for a number of reasons, but an important benefit-in theory-is that they enable retailers to stock their shelves without laying out cash in advance, while vendors either retain ownership of their goods or are granted a first-priority security interest in their good and are therefore never at risk of nonpayment (as they would be if they shipped on credit). As a result of these purported features, consignment agreements are sometimes proposed by struggling retailers whose vendors have become reluctant to provide trade terms."

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Jay Indyke Partner New York