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Sears Owner Faces $40 Million Lawsuit from Bangladeshi Suppliers: Report

The parent company of Sears Holdings has been threatened with legal action after allegedly refusing to settle more than $40 million of outstanding debt with its garment suppliers in Bangladesh.

Lawyers for 19 factory owners, as reported exclusively by Apparel Insider, are demanding that Transformco, a privately held company owned by American billionaire Eddie Lampert’s ESL Investments hedge fund, extend immediate payment amid claims that Transformco “willingly misrepresented” its finances to convince suppliers to extend it credit.

Transformco did not immediately respond to requests for comment.

According to lawyers, more than $21 million of their clients’ products have already been shipped and are being stored by Transformco’s carriers in U.S. ports.

“I sent the shipment worth $6 million for [Transformco] but the company suddenly called me for cancelling the order,” Rakibul Alam Chowdhury, managing director of Combined Apparel, told local news agency Bangladesh Sangbad Sangstha in May.

More than two dozen Bangladeshi suppliers are in similar “deep trouble” after Sears Holdings allegedly canceled or withheld orders. “[Sears Holdings] is not paying us,” Chowdhury said.

The suppliers have been informed by Transformco’s shippers that “the buyer has abandoned the cargo,” the lawyer’s wrote in a letter, seen by Apparel Insider, to Transformco. “The carriers are now threatening to sell or destroy the goods.”

They further claim that following Transformco’s acquisition of Sears in January 2019, the company’s executives, abetted by third-party sourcing agents such as Triburg Consultants and Li & Fung, “induced suppliers around the world to extend millions of dollars of trade credit.” Transformco, the lawyers added, has “now led the suppliers over a financial cliff that has jeopardized their businesses and impacted the jobs of thousands of their employees” who face “severe hardship and even starvation” due to what they call a “breach of contract.”

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Because of this, Transformco action’s have “contributed to an evolving humanitarian disaster in Bangladesh and elsewhere in Asia,” the lawyers wrote.

Transformco has been given till June 8 to respond. If the matter continues to be unresolved, the lawyers say their clients may seek Transformco’s involuntary bankruptcy for non-payment of debts.

In early April, Transformco, which also owns Kmart, temporarily closed all Sears stores—but not distribution centers or customer care—in a bid to to help slow the spread of the COVID-19 contagion, which had just begun gripping the nation. Kmart stores and Kmart Pharmacy locations remained open to provide “essential products and services.” As of June 5, Sears has reopened 53 locations across the United States. Fewer than 190 Kmart and Sears stores remain after hundreds were shuttered over the past few years due to financial struggles.

Bangladesh’s garment sector, the world’s second-largest exporter of clothing after China, has seen more than $3 million in canceled orders due to tightening pursestrings amid the pandemic, according to the Bangladesh Garment Manufacturers and Exporters Association (BGMEA). Rubana Huq, the trade group’s president who declined to comment on the threatened legal action, warned Thursday that the country could see an “irrecoverable loss” of $5 billion by the end of the fiscal year due to vanished business.

Following criticisms that factories were being reopened too quickly, the BGMEA says it will open a laboratory in Bangladesh to test workers for COVID-19. The facility, run by the BGMEA and the Diabetic Association of Bangladesh, will test up to 180 samples daily from Saturday. Another two laboratories for workers are slated to open soon, Huq said.

“It’s a state-of-the-art lab… workers will get first preference in here,” Huq told the Thomson Reuters Foundation Friday. “[We] need data on COVID-19. So if workers or factories register through us, we can adopt an industry-wide practice of precaution and isolation.”

The Dhaka Tribune reported Wednesday that 187 garment workers have been infected with COVID-19 since factories started coming back online on April 26. Of the positive cases, 126 are from 51 BGMEA member factories, 58 from 21 Bangladesh Knitwear Manufacturers and Exporters Association member factories, and three from two Bangladesh Textile Mills Association member factories.