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Fossil is a US-headquartered Swiss watchmaker that sells or has sold Danish, Italian and German watches assembled in China using Japanese movements possibly made in Malaysia. Having not been selling enough watches recently, Fossil has filed for bankruptcy. In England.
Reasons for the Nasdaq-listed company jumping the Atlantic are much less obvious than the cause of failure. Fossil is being crushed by debt, its sales having slumped by two-thirds over the past 10 years. Now, Fossil needs to get rid of $150mn in unsecured notes due next November.
The rescue process would normally mean Nasdaq delisting — but Fossil has other ideas. It’s gone forum shopping.
The High Court said this month that Texas-based Fossil could file for bankruptcy under English law. The case is allowed to progress in London because, in August, Fossil created an indirect subsidiary in Milton Keynes for this sole purpose.
Fossil then asked its local bankruptcy court in Texas to recognise the English bankruptcy filing. The idea is to make sure all future litigation happens within Chapter 15 of US bankruptcy law, which covers foreign insolvencies, rather than Chapter 11. (Credit to Debtwire, from whose reporting and analysis we’ve cribbed shamelessly.)
It’s not uncommon for overseas companies to use English courts when negotiating with creditors, but they’re rarely American. Chapter 11 usually works fine. English law can offer a few benefits for troubled companies, however, most notably related to shielding shareholders.
A key principle of US bankruptcy and insolvency proceedings is absolute priority. If any tier of creditors rejects the workout proposal, the court can still force acceptance by approving a cross-class cramdown, but dissenting creditors will be paid in full before anything flows to the level below. Shareholders, the bottom tier, are almost always wiped out.
The UK’s introduction of restructuring plans in 2020 changed the game. Whereas the Chapter 11 process has to involve all of a company’s debt, UK companies were allowed to pick and choose which parts of their capital structure they wanted to repair. It became possible, in justified circumstances, for shareholders of bankrupt companies to retain equity value irrespective of what happened to those above.
Choosing a UK restructuring plan means Fossil might be able to flip the 2026 debt without zeroing shareholders. Virgin Atlantic pulled a similar trick as soon as the law changed in 2020, filing for bankruptcy in London then porting the case to New York, which strengthened the hand of its equity co-owners, Delta Air Lines and Richard Branson.
Another perk of English law is that is that, while restructuring plans need 75 per cent approval by value, there’s no need to win over the majority of individual creditors. That may be useful for Fossil, since nearly a quarter of its 2026 notes are held by retail investors, several of whom are resisting having “England and Wales” replace “New York” on their paperwork.
But will Fossil’s plan work? It’s hard to say. The Court of Appeal ruled in 2024 that existing shareholders of German landlord Adler could retain some equity, deciding that sometimes there were good reasons for differential treatment. But the ruling is deliberately vague on what those reasons might be, so we don’t yet know what kind of precedent was set. The High Court last month updated its Practice Statement on restructuring plans with the aim of simplifying proceedings, but may have done the opposite.
Just as important is the question of whether Fossil is in London legitimately. Forum shopping is an accepted part of English law though the rescue in summer of Home Shopping Europe, a German retailer with bond documents for its Luxembourg financing arm recently converted to English law, caused Justice Hildyard some disquiet. His worry was around whether, for example, a Texas court would accept that a company headquartered in its state was really from Berkshire.
Fossil will be back in the High Court on November 10 for a sanction hearing, where dissenting noteholders can voice their concerns about fairness. The company said last week it was extending its exchange offer to the same date, having not yet received the required minimum of at least 90 per cent valid tenders.
Whether the stock will still be worth saving by then is another question entirely:
