The garment exporters are owed upwards of $84 million by the three companies and are in a state of suspense about whether they would get paid at all
Bangladeshi suppliers of busted Western retailers Debenhams, JCPenney and Arcadia Group are on tenterhooks as they have no idea when they would be getting the payments for the goods they have already shipped or manufactured.
The garment exporters are owed upwards of $84 million by the three companies, according to sector people.
Dhaka Tribune traced most of the suppliers of the three brands and the majority of them declined to comment on record for fear of reprisal.
The stuck payments mean most of the garment factories are in a precarious financial state.
First to go into administration was the British departmental store Debenhams back in April.
A total of 32 Bangladeshi apparel suppliers are owed about $20 million for goods already shipped to what is one of the largest and most historic department store chains in the world.
They were living in hope that the administrators would be able to rescue the British retail institution, which prospered for more than two centuries.
But on Tuesday, its administrators announced the chain would be wound down in the new year and all of its remaining 124 stores shut, putting potentially all of its 12,000 employees out of work.
In the case of bankruptcy or liquidation, it is the salaries and rents that get paid first and then the administrators proceed to other liabilities such as loans.
But the payments to suppliers are not the priority, meaning the 32 companies are most definitely heading towards a $23.6 million hole in their books.
As of May, the work orders cancelled or held by Debenhams stood at $23.6 million, according to the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), the sector's apex trade body.
“There is no development on that front,” one of the 32 suppliers to Debenhams told Dhaka Tribune on condition of anonymity.
The suppliers are working under a platform named Debenhams Vendors Community.
Since Debenhams did not react to their repeated pleas for clearing their dues, the platform has decided to go for legal action against the British company’s forwarder.
“However, right now we are in very close negotiations with the forwarders and hopefully we will have a result soon,” he added.
Debenhams used to import apparel goods worth $100 million from Bangladesh every year, according to industry insiders.
The suppliers will have to take the legal route to get their dues from Debenham’s administrators, said KI Hossain, president of the Bangladesh Garment Buying House Association.
Hossain worked with Debenhams as a buying house.
“If we were insured, we could place our claims.”
Hossain went on to urge the government to sign the Geneva Convention of 1980, which empowers exporters through sovereign guarantee.
The demise of Debenhams comes just a day after another British high street giant, billionaire Philip Green's retail empire Arcadia Group, collapsed into adminstration.
The latest retailer to collapse is the British high-street giant Arcadia Group, whose brands include the highly popular Topshop, Burton and Wallis.
Six brands of Arcadia Group -- including Burton, Dorothy Perkins, Topman, Topshop and Miss Selfridge -- cancelled or held work orders amounting to $26.4 million, according to a June estimation of the BGMEA.
However, the figure is most definitely bigger as all the suppliers did not report to the BGMEA, when it sought information of order cancellations or deferred payment from factories to analyse the impact of the pandemic.
“This is from our initial estimation based on the response from the suppliers. The real figure is higher,” said NafisUd Doula, chairman of RMG Sustainability Council (RSC), who was assigned to assess the impact of work order cancellations.
Arcadia did not pay its suppliers fully -- a significant portion of the payment is pending, said a member of the BGMEA who is still waiting on his payment from the British group on the condition of anonymity.
However, some of the manufacturers who received orders via third parties like buying houses did receive payment.
“Arcadia restored the work orders and took the products it had cancelled when the pandemic began. But it is making an unusual delay in clearing the payment,” said a supplier seeking anonymity to not upset the British fashion giant.
But for orders that were put on a delayed shipment or are on hold, the exporters are in a puddle of uncertainty.
“Now we are in grave concern as the company is on the verge of collapse and it is not known to me how we would be paid or what would be the method after the appointment of an administrator,” said another supplier.
The other big concern is the discount a beleaguered Arcadia would demand to take the finished goods.
“I came to know that Arcadia demanded a 20 to 30 per cent discount, which means about 20 per cent losses. It is a big concern for the manufacturers,” Doula said.
Regardless of Arcadia’s fate, its Bangladeshi suppliers though would have their investment stuck for the foreseeable future.
Across the Atlantic, JCPenny, another venerable department store chain like Debenhams, had filed for bankruptcy in May. But unlike its British counterpart, the 118-year-old American retail treasure was able to pull itself out of the ditch by arranging a sale to mall owners Brookfield Property Partners and Simon Property Group for about $800 million in cash and debt last week.
The development has given its 11 suppliers in Bangladesh, who were owed upwards of $34 billion in cancelled or held work orders at the time of filing for bankruptcy, a spark of hope.
“We have received partial payment and the rest will depend on the court directive,” AK Azad, Managing Director of Ha-Meem Group, a major supplier to JCPenney that imported goods worth about $250 million from Bangladesh every year.
The new management will decide on how they will make the payment in line with the court order.
Azad is hopeful that the new owners would take into consideration Ha-Meem Group's 20-year business relationship with JCPenney.
“Since we have no protection against buyers’ bankruptcy, we will be faced with non-repatriation of fund risks, which will ultimately impact our single-borrower exposure limit,” said Rubana Huq, president of the BGMEA.
Subsequently, the BGMEA has requested the central bank to create a block account for outstanding liabilities resulting from brand insolvencies so that its members can continue with their business.
International bankruptcy is different and the only way out is through negotiating with the arbitrators, and in a few cases, through litigation.
“We will support our members’ decision and have been constantly helping our members with discussions with administrators,” she added.