Corporate Liability | Supply Chain Law | International Trade

Case Background

Indonesian textile manufacturer PT Sri Rejeki Isman (Sritex), a key supplier to global brands including H&M and Uniqlo, has been embroiled in significant financial turmoil. The company was declared bankrupt by an Indonesian commercial court in October 2024 after failing to meet obligations under a 2022 debt restructuring agreement. The Supreme Court upheld this ruling in December 2024, confirming the company’s insolvency status.

In March 2025, Sritex ceased operations, leading to the layoff of over 10,000 workers. The company cited the inability to reach an agreement with creditors as the primary reason for its closure.

Legal Implications

The bankruptcy of PT Sri Rejeki Isman (Sritex) has far-reaching legal consequences that extend beyond the company itself. With total liabilities exceeding $1.6 billion, the case highlights significant issues in corporate governance, creditor rights, and labor law.

The Indonesian Supreme Court’s decision to uphold the bankruptcy ruling underscores the legal complexities involved when a major supplier to global brands like H&M and Uniqlo defaults on obligations. This situation raises critical questions about the responsibilities of multinational corporations in monitoring their supply chains and the legal protections afforded to workers in such circumstances.

Supply Chain Due Diligence

The collapse of Sritex underscores the importance of robust due diligence in supply chain management. Companies sourcing from suppliers facing financial instability may be exposed to risks including:

• Contractual Breaches: Disruptions in supply can lead to breaches of contract, resulting in potential legal claims for non-performance.
• Reputational Damage: Association with a failing supplier can harm a company’s reputation, especially concerning labor practices and corporate social responsibility.
• Legal Liabilities: Failure to monitor and address supplier solvency may lead to legal liabilities under international trade laws and regulations.

Worker Rights and Labor Law

The mass layoffs at Sritex have raised significant labor law concerns. Reports indicate that the company did not conduct proper negotiations with labor unions or involve mediators from the Ministry of Manpower, leading to allegations of illegal layoffs.

Under Indonesian labor law, employers are required to engage in negotiations with unions and adhere to legal procedures when terminating employment. The failure to do so may expose the company to legal actions from affected employees and labor organizations.

Corporate Responsibility and Ethical Sourcing

Global brands sourcing from Sritex, such as H&M and Uniqlo, have a responsibility to ensure ethical sourcing practices. The sudden closure of Sritex and the subsequent layoffs highlight the need for companies to:

• Implement Risk Mitigation Strategies: Develop contingency plans to address potential supplier failures.
• Enhance Transparency: Provide clear communication to stakeholders regarding supply chain disruptions.
• Engage in Responsible Exit Strategies: Follow ethical guidelines when terminating relationships with suppliers, ensuring minimal harm to workers.

Conclusion

The financial collapse of PT Sri Rejeki Isman (Sritex), one of Indonesia’s largest textile manufacturers and a key supplier to global brands like H&M and Uniqlo, underscores the critical importance of robust corporate governance and due diligence in international supply chains. The company’s bankruptcy, precipitated by a creditor’s lawsuit and exacerbated by a failed debt restructuring agreement, has led to significant operational disruptions and the loss of thousands of jobs.(jakartaglobe.id)

This case serves as a cautionary tale for multinational corporations relying on overseas suppliers. It highlights the necessity for comprehensive risk assessments, including financial stability evaluations and contingency planning, to mitigate potential disruptions. Furthermore, it emphasizes the importance of adhering to ethical labor practices and maintaining transparent communication with stakeholders during crises.

Legal professionals advising clients in the retail and manufacturing sectors should consider this case when developing strategies for supply chain risk management. Implementing proactive measures can help safeguard against similar challenges and ensure the resilience of global supply networks.