Bankrupt NYC fashion label’s sales reps ordered to return commissions

A New York bankruptcy trustee has ordered dozens of former sales reps at Worth Collection – an upscale, New York-based women’s apparel label that went belly-up three years ago – to return tens of thousands of dollars in commissions they earned shortly before the company’s collapse.

Stunned stylists who worked as independent contractors for Worth Collection — which catered to professional women at trunk shows that were typically held at the stylists’ homes or showrooms — were ordered to cough up the commissions by US Bankruptcy Trustee Douglas Tabachnik, according to court papers.

Some 62 stylists learned the shocking news last week, with many getting offers in the mail to settle their five-figure debt before they are served with lawsuits. All told, about 200 stylists are affected by the trustee’s demand, said Michele Baena, Worth Collection’s top stylist who is being sued for $52,000.  

Most of the women “have already spent their money and don’t have it lying around,” Baena told The Post. “To be slapped with this is very distressing — I’ve never been sued in my entire life.”

“We are angry and in shock,” added former Worth stylist Andrea Greenspan, who was asked by Tabachnik to repay $19,000 worth of commissions. “There are women who are widowed, divorced or single mothers who are supporting their families and have to hire lawyers now.”

Founded in 1991, Worth Collection regularly advertised its appointment-only shopping in Town & Country and had been a profitable business, according to the stylists and media reports. It was acquired by private equity firm, New Water Capital, L.P. in 2016. 

Four years later in February 2020, the brand was forced into Chapter 7 by creditors. New Water took on $20 million in debt to purchase the company for $40 million, according to a WWD report.

In its heyday, Worth Collection had about 1,400 stylists across the country. It held annual meetings for the stylists including at the Waldorf Astoria, Greenspan said. The brand also operated a chain of outlets called W that offered out-of-season duds. All clothing carried a Worth or W label.

As the company’s lender wound down the business, stylists were offered higher commission rates – up to 50% – to sell through the inventory at deeply discounted prices, according to court documents.

The trustee argues that the liquidation was done for the benefit of the bank, which had no intention of repaying clothing manufacturers. The trustee also claims the stylists were privy to the company’s financial troubles and had “privileged” information about the plan to file for bankruptcy. 

Not so, say the stylists. 

“The bank instructed Worth’s president, who instructed the stylists in numerous emails to continue to sell,” claimed Baena, who had worked for Worth for 11 years. “We were selling through a season so we could receive larger commissions, but we had no knowledge of a bankruptcy.”

Greenspan said she got word that the company was filing for bankruptcy as she was headed to a trunk show in Charleston, SC.

“We were told Worth was looking for buyers for the company,” she added.

“I was on my way to the airport when I got a call that the show was off,” and that company was shutting down, she said. “We’d all just spent money on hotels and airfare.”

In a Wednesday interview with The Post, Tabachnik responded that the former sales reps aren’t the only ones who are getting burned in the liquidation.

“Unfortunately, there are a lot of victims when a company files for bankruptcy,” Tabachnik said. “These people were paid money that perhaps should have gone to a vendor who was also unaware that the company wouldn’t be able to pay their bills. The objective of the bankruptcy code is to distribute the unfairness equally.”

Bankruptcy regulations allow creditors to look back and question payments a company makes 90 days prior to filing for bankruptcy protection, but in this case it seems “heavy-handed” to go after sales reps, said Adam Stein-Sapir, portfolio manager of Pioneer Funding Group, which focuses on distressed debt.

These women “weren’t officers of the company and shouldn’t be expected to know that the commissions they got were at the expense of the vendors,” Stein-Sapir said.

“There are pretty strong collection powers at the trustee’s disposal,” Stein-Sapir said. “You can’t run from this.”