An expensive move to open a store in New York City led to the collapse of the Orla Kiely retail fashion empire, according to its administrators.

The collapse of Kiely Rowan plc with debts of £7.25 million (€8.4 million) in September 2018 sent shock waves across the retail and fashion industries as the long-established business was on an upward trajectory having reported increasing revenue and operating profit for 2017.

The second progress report by joint administrator Chris Newell sheds light on the reason for the clothing business collapsing even as Ms Kiely’s separate licensing business continues to expand.

Report

In a 29-page report lodged with Companies House in the UK, Mr Newell said: “Part of the explanation for the failure of the business appears to be the amounts utilised to fund the business in the US entity”.

“It appears that the opening of a new shop in New York created a drain on the cash flow, causing the requirement for additional borrowing which eventually led to the collapse of the whole group,” Mr Newell said.

Mr Newell said that “investigations into this matter and the actions of the directors in funding the US project to the detriment of the remainder of the group [are] currently ongoing”.

Ms Kiely and her husband, Dermott Rowan, were the company’s directors at the time of the collapse and Mr Newell said the focus of the joint administrators was now on fully exploring the flow of funds through the Orla Kiely group companies – Killyon Stem LLP and Kiely Rowan plc.

Mr Newell went on to say that s as part of the joint administrator’s statutory duties, an investigation of the company directors was conducted.

“In this regard, a confidential report was submitted to the insolvency service on December 21st, 2018,” said.

Creditors

The progress report makes grim reading for creditors who are owed a total of £7.2 million.

The report said that secured creditor Metro Bank was owed £2.15 million at the time of the collapse and “it is not anticipated that the secured creditor will be paid in full”.

Mr Newell said that unsecured creditors were estimated to be owed £6.13 million but that “it is not anticipated that a dividend will be paid to unsecured creditors”.

The report noted that the “Irish tax and customs” are one of the unsecured creditors and are owed £100,000.

The report said that preferential creditors relating to holiday pay and wage arrears were estimated to be £97,412 and, to date, 38 claims had been received totalling £41,398.

“It is likely that there will be a dividend to preferential creditors; however, the quantum and timing of the dividend will depend on the realisations and costs, ” Mr Newell said.

In respect of the separate administration of connected Orla Kiely firm Killyon Stem LLP, where unsecured creditors have made clams totalling £1.99 million, Mr Newell anticipates that there will be a dividend available but it is likely to be about 0.02p in the pound.

Mr Newell said that he expected there to be a payment from the administration of Killyon Stem LLP into the Kiely Rowan plc administration but that the final quantum was uncertain and dependent on any further realisations in Killyon Stem LLP.

Mr Newell reported that the administration of Kiely Rowan plc had produced a surplus of £113,669. He had realised £396,524 from the sale of stock. However, the administrators’ fees to date of £110,000, along with agents’ and valuers’ fees of £153,341, have been the largest costs during the administration.

Earlier this year, Orla Kiely described the collapse of her clothing business as “a bereavement”.

“We did everything we could to save the business and to watch it fail was devastating, ” she said.