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Fossil, the globally-sourced watchmaker, has filed for bankruptcy – but not in the United States, where it’s headquartered and listed on the Nasdaq. The company is pursuing a restructuring under English law, a move that highlights a growing trend of companies strategically choosing jurisdictions to maximize their chances of a favorable outcome.
Fossil, which sells watches of Danish, Italian, and German origin assembled in China with Japanese movements (perhaps sourced from Malaysia), has struggled with declining sales, dropping by two-thirds over the past decade. facing $150 million in unsecured notes due next November, the company is attempting to avoid a traditional Nasdaq delisting and a Chapter 11 bankruptcy in the US.
The Appeal of English Restructuring Plans
The High Court in England recently authorized Texas-based Fossil to file for bankruptcy under English law.This was made possible by the creation of an indirect subsidiary in Milton Keynes in August, specifically for this purpose. Fossil then requested its Texas bankruptcy court recognize the English filing, aiming to channel all future litigation through Chapter 15 of US bankruptcy law, which governs foreign insolvencies.
While utilizing English courts for creditor negotiations isn’t unprecedented, it’s unusual for American companies. The key difference lies in the protection afforded to shareholders. A core tenet of US bankruptcy proceedings is absolute priority, meaning creditors must be paid in full before any value can flow to shareholders.The UK, however, introduced restructuring plans in 2020 that allow companies to selectively address parts of their capital structure.
This innovation allows for the possibility of shareholders retaining equity even if some creditors are not fully satisfied – a scenario virtually unachievable under Chapter 11. As one analyst noted, “The UK restructuring plan offers a lifeline to shareholders that simply doesn’t exist in the US system.” Virgin Atlantic successfully employed this strategy in 2020,filing in London before transferring the case to New York,bolstering the position of its equity partners,Delta Air Lines and Richard Branson.
Another advantage of English law is the approval threshold for restructuring plans: 75% approval by value, without requiring a majority of individual creditors. This coudl prove beneficial for Fossil, as nearly a quarter of its 2026 notes are held by retail investors who are reportedly resistant to the change in governing law from New York to “England and Wales.”
However, the success of Fossil’s plan remains uncertain. A 2024 Court of Appeal ruling regarding German landlord Adler allowed existing shareholders to retain some equity,but the reasoning was deliberately vague,leaving the precedent unclear. The High Court’s recent update to its Practise Statement on restructuring plans, intended to simplify proceedings, may have inadvertently elaborate them.
The legitimacy of Fossil’s presence in London is also under scrutiny. While forum shopping – choosing a jurisdiction favorable to one’s case – is accepted, concerns were raised earlier this year regarding Home Shopping Europe, a German retailer that converted its Luxembourg financing documents to English law. Justice hildyard questioned whether a Texas court would recognize a company headquartered in its state as genuinely originating from Berkshire.
The November 10th Showdown
Fossil
