Export businesses face the risk of losing 'both capital and profit'

When the purchasing partner goes bankrupt, bankruptcy protection

Noble House filed for Chapter 11 bankruptcy protection on September 11 in the United States Bankruptcy Court for the Southern District of Texas, Houston Division (“Bankruptcy Court”). The bankruptcy protection is intended to facilitate the ongoing restructuring of Noble House. According to a report from Bankrupt Company News, the filing lists $74 million in long-term debt and $65 million in operating debt.

Wood export enterprises face the risk of losing both capital and profits when partners declare bankruptcy or enter bankruptcy protection. Photo: Nguyen Hanh

Noble House is a distributor, manufacturer and retailer of indoor and outdoor home furnishings with distribution across e-commerce channels and fulfilling orders directly to consumers from its distribution centers.

According to businesses in the wood industry, Noble House's filing for bankruptcy means that debts to its partners (including Vietnamese wood exporters) will have to stop being paid and the receipt of goods will also be suspended. After about 30 - 60 days, when the Court initially accepts the restructuring by the new buyer or restructuring. At that time, businesses will be able to get their goods back.

Regarding old debts, suppliers (usually old unsecured creditors) will have to negotiate with the new management of Noble House. Whether to take back new goods or cooperate again will also be decided by the new management of Noble House.

However, after restructuring, hearings or money-related issues will be controlled by the Court. Unsecured creditors have the right to sue or claim rights at hearings and this will take a long time.

Currently, the Court has sent to the partners with about 30 unsecured creditors the registration letter of membership of the Committee of Unsecured Creditors. Vietnam has about more than 18 enterprises supplying goods to Noble House, however, the US Court has only invited about 8 qualified enterprises.

A representative of a business supplying goods to Noble House said that the business may or may not be selected. In case the business is selected but does not participate in the trial, it can still attend online and hire a lawyer to protect its assets.

The solution for businesses today is to find ways to pay off debts and find ways to reduce losses. At the same time, hire a lawyer to reduce the damage to the business. In addition, find customers to compensate for the loss of goods due to lost orders from this business. At the same time, work with the bank to avoid the situation where the bank forecloses on assets, etc.

Talking to reporters of the Industry and Trade Newspaper, economic expert Dinh Trong Thinh said that we are still waiting to see what the procedures and contents are. However, this is a serious problem because Vietnamese export enterprises may lose capital. It is also difficult for enterprises to wait to claim the assets sold to this boss according to the Court's decision.

And the export risk insurance gap

Not only in the US market, the situation of partners and customers in major markets declaring bankruptcy and closing down has also occurred.

As a business that has faced this risk, Mr. Nguyen Liem - General Director of Lam Viet Joint Stock Company - said that 2-3 years ago we also got into this problem in the UK market, Lam Viet lost about 2.6 million USD (equivalent to 62 billion VND due to debt from partners), in addition to still having inventory.

Not only Lam Viet but many other businesses are in the same situation. They not only owe Vietnamese suppliers but also suppliers in other countries.

According to the UK Bankruptcy Law, the first priority is to recover assets to pay workers' wages. Next are taxes, bank debts, rent, and finally the remaining payments to suppliers. At that time, businesses also discussed hiring lawyers, but the consulting team advised against pursuing the lawsuit because they had no money left. Or if they did get it back, it would only be enough to cover travel and hiring lawyers.

The business world is like a battlefield and it is clear that "big boats have big waves". In recent times, export enterprises have not only faced the risk of commercial fraud, but also the risk of losing both capital and profits when import partners declare bankruptcy or enter bankruptcy protection. Meanwhile, the biggest problem in Vietnam is the gap in risk insurance for import-export enterprises.

Mr. Dinh Trong Thinh said that import-export insurance has existed for a long time. This is a form of ensuring safety in import-export payments. This will cost money. Perhaps, this is also one of the reasons why export enterprises often do not care and do not implement it because they think that buying and selling is expensive and troublesome.

“Import-export insurance is a very popular type of insurance. Next to that is payment risk insurance. It’s just that businesses don’t participate in this,” said expert Dinh Trong Thinh.

Currently, most export enterprises do not have risk prevention measures, so with the current situation, Mr. Dinh Trong Thinh recommends that enterprises need to calmly consider, from there make requests to buyers and authorities to intervene.

In addition, Vietnamese embassies and trade offices abroad need to get involved and work with competent authorities of your country or the Court to grasp the situation and handle situations that arise. From there, support businesses to participate in the process of monitoring, managing, supervising and recovering debts in the best way.

In the context of the unpredictable fluctuations of the world economy, it is predicted that bankruptcy will occur more often. Meanwhile, the wood processing and export industry is a vulnerable industry because it requires huge investments in raw materials and factories, and it takes a long time to recover the money.

Therefore, in the long term, wood industry enterprises also recommend that the Vietnam Timber and Forest Products Association need to agree with enterprises in the industry on payment methods. In this case, enterprises may have to accept low profits, but will not fall into a situation where partners force prices down and avoid the situation where when partners go bankrupt or are under bankruptcy protection, enterprises will be unable to recover money.

Businesses also need to connect and exchange with each other to grasp information from export markets. In addition, it is necessary to plan and build a financial mechanism to prevent risks.

Currently, Vietnamese enterprises are still following the path of self-study, self-exploration, self-research and issues related to import-export risk insurance, Vietnamese enterprises in general, and those in the wood industry in particular, are not interested, or have not paid attention to.

In another development, end-to-end B2B e-commerce solutions provider GigaCloud Technology announced that it has entered into a definitive agreement as a shell bidder to acquire substantially all of the assets of Noble House Home Furnishings and certain of its affiliates for $85 million in order to resolve Noble House’s Chapter 11 bankruptcy case.

“With over 8,000 SKUs and a robust supply chain system, we believe that Noble House will significantly increase our 1P and 3P business, complementing our already diverse product range,” said Larry Wu, founder, chairman and CEO of GigaCloud. “On the other hand, we believe that GigaCloud’s B2B platform will enhance Noble House’s operational efficiency and expand Noble House’s sales channels. With a healthy balance sheet and a cohesive market ecosystem, we believe that GigaCloud has the resources and management capabilities to stabilize and grow Noble House’s business in the future.”

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