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Declaring bankruptcy by brands: Need a fair and ethical business model

Businesses can easily be compared to a roller coaster ride full of emotions and stresses. One of the main responsibilities that befalls upon a business is paying its dues and debts to creditors. From stuff salary to paying its suppliers, a business needs to ensure that it is being run fairly and ethically. Unfortunately, many of the major players in our industry have decided not to abide by this simple rulebook.

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Figure: In case of apparel brands declaring bankruptcy, the payments to suppliers is not their priority. 

Instead they constantly looking for loopholes just to make that extra buck or staying in the safe side at the expense of others!!

Many renowned and large buyers, retail brands have declared bankruptcy or gone in to administration during this pandemic situation. When a business goes into administration, an appointed licensed insolvency practitioner assumes control of the company and manages the business from that point onward.

Companies that file bankruptcy, negotiate with creditors to restructure debt terms while those that file Chapter 7 typically liquidate assets and call it a day. Usually, when a company seeks for bankruptcy, it pays the arrears to the employees and house rents in priority basis. The company also gives priority in payment to the directors. But the payments to suppliers is not their priority. They restructure and in that process a lot of their debts with suppliers are written off. But then they return and the whole process starts again.

But to be honest, the large brands or buyers are not the only guilty party here. In many incidents, our greed and eagerness to dump our ethics/values behind in order to make quick money has helped create such circumstances where no matter what the situation is, only one side ends up as gainers and the bottom of the chain, root level workers are the victims.

Work together

RMG sector in Bangladesh have always been characterized by a culture of finger-pointing between different stakeholders, where everyone highlights the responsibility of the other. Same goes on even now. What is still missing is a real discussion on what makes the sector more sustainable in a new post-pandemic world of shopping and producing textiles.

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We stop unethical practices and try to understand what actually is good for the whole sector. We have to change our mentality of agreeing to anything and everything the buyer asks for in order to get some order in. We have to be able to come up with solutions to questions, such as, who will provide us the cushion to mirror western bankruptcies and approach our banks where forced loans will be created against all these shipments that were ready, which will ultimately get cancelled and held up and becomes totally uncertain.

Better analytical scrutiny

We, the Bangladesh RMG makers need to be better at analytical scrutiny of financial data. When the UK department store House of Fraser has left many apparels, manufacturing companies in Bangladesh without any payments. Anyone with a business and financial acumen knew in the UK for over three years that House of Fraser accounts were in distressed positions.

House of Fraser is now in administration. If a company goes in administration then it means it has lots of debt. JC Penney has filed for bankruptcy. The truth is JC Penny will not be able to honor all its creditors including some RMG manufacturers in Bangladesh. We cannot keep giving credit to sick companies – retailers that have been in administration or through a restructuring. Tighten their payment terms or make them pay half up front, half later.

Corporate efforts to help

As the pandemic situation continues to unfold, the world may see more bankruptcy applications and further mergers and acquisitions. We have to be adoptable and forward thinking. Large corporate houses have to come to the frontline to defend the rights and livelihoods of the millions of Bangladeshis.

Coming up with fair, revolutionary ways of tackling the situation and making sure our beloved industry survives. Large corporate and business houses from all similar manufacturing countries, have to learn to agree that, Buyers/retail brands declaring bankruptcies or going in admin is equally harmful to everyone and not just Bangladesh.

We all have to try hard to find a mutually agreeable solution, but so far it seems to be a one-sided effort by us with almost no sign of workable cooperation from the other end.

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