Alltrue and the Ethical Issues with ABC
Disclaimer: StyleWise staff writers are not lawyers. Nothing in this post should be taken as legal advice.
While StyleWise began with a focus on ethical production and fair trade certified brands, it quickly expanded to cover business ethics more generally.
That’s because it’s not really possible to tell the full story of ethics in the consumer product industry without thinking through how businesses are structured and how they deal with all stakeholders.
One of my first post series, called Buyer Beware, covered business models I won’t support. These include one-for-one models, multi-level marketing, coercive Christian businesses, and businesses that exploit the poverty of creators in their marketing.
Surprisingly, in 2016 when these posts went live, there was some pushback. People didn’t want to interrogate the basic structure of businesses. They argued that the way a company chose to deal with customers, salespeople, and even creators had no implications for the “ethics” of the product.
But things have changed. And I think most of us these days would argue that how a company is organized and what business decisions are made have everything to do with the company’s ethics. So, just because a company sells fair trade or sustainable products doesn’t mean that they’re operating in an ethical manner.
This becomes a particularly sticky issue when a conscientious company folds or significantly restructures. While bankruptcy and its related options may sometimes be unavoidable, it’s a financially-devastating outcome for many stakeholders. There are significant losses for investors, suppliers, and customers, because a company that is forced to close or restructure using this legal loophole is not obligated to pay off all of their debts.
In this post, I want to use a recent example to explore the ethics of a lesser-known alternative to bankruptcy, called ABC (Assignment for the Benefit of Creditors).
What Happens When an Ethical Brand Folds?
Causebox was founded in 2014 by childhood friends Brett McCollum and Matt Richardson. They had a mission to introduce consumers to ethically-sourced and produced products from small and mostly women-owned businesses.
They launched a monthly subscription box for these goods. Causebox took off, and McCollum and Richardson ended up on Forbes’ 2019 30 Under 30 Social Impact list for their work with local artisans.
In 2021, Causebox rebranded as Alltrue. With a subscription box, sustainable market, and new magazine, Alltrue used its expanding brand to champion ethical goods.
They gathered thousands of customers interested in sustainability and the ethical treatment of workers. As of 2021, Alltrue claimed to have more than 300,000 subscribers.
Many of these customers, and the ethical brands Alltrue worked with, were left empty-handed when Alltrue abruptly shut its doors and sold its assets to a new company in Spring 2022. Ironically, the shuttering and acquisition process seems far from ethical.
According to reports from such artisans, when the company shut its doors earlier this year, it owed vendors more than $1.9 million. Some individual small companies devoted to ethical goods claimed to have been owed hundreds of thousands of dollars, a debilitating sum for small businesses.
On top of that, many customers took to Reddit and other social media outlets to complain about subscription boxes and add-on products they had never received. Unfortunately, most of these companies will not be paid, and the customers are not legally required to be reimbursed either.
What is an ABC (Assignment for the Benefit of Creditors)?
Alltrue entered into a process called Assignment for the Benefit of Creditors (ABC). This process is an alternative to bankruptcy that avoids legal oversight and bad press.
In Chapter 7 or 11 bankruptcy, the business is assigned an unknown trustee. They are then subject to federal law and the federal court system, which determines how debts will be managed and paid. But with ABC, the liquidation process is carried out without government oversight. To begin the ABC process, the business needs board and shareholder approval. But, vendors and customers are often left in the lurch.
ABC is often championed as being quicker and more efficient than bankruptcy. The financially-troubled business choosing its own trustee is justified by the argument that a chosen trustee has better knowledge of the business and how best to liquidate it. However, critics of ABC argue that the lack of external accountability can result in decisions that benefit the original owner far more than other stakeholders.
ABC is also quieter than bankruptcy – it avoids bad press because the company can announce that they sold, rather than that they went bankrupt. The process takes less time than bankruptcy, and the business can be said to “shut its doors” or “be acquired by” another company.
Additionally, ABC allows a brand and its assets to be sold without the buyer taking on responsibility for their debts. The money raised by the sale is used to pay off as much debt as possible.
Unfortunately, in Alltrue’s case, there was not enough money left to get to ethical vendors. That means that the new owners can sell product that hasn’t been paid for without legal repercussions. Because of this, some vendors have organized to try and take legal action.
What’s Next for Alltrue?
Alltrue is being relaunched by a company that owns other subscription boxes. The new company does plan to maintain the old Alltrue’s ethical branding. Chris Davis, a partner in the business that now owns Alltrue and the former CEO of Loot Crate, says the new company “believes strongly in Alltrue’s mission, community and unique approach to sourcing and curation.”
While vendors of the original Alltrue will not get paid, their products (part of Alltrue’s assets that got sold) will be used to relaunch the subscription service.
Fortunately for Alltrue’s subscribers, the company plans to honor their orders and deliver the boxes they are owed. While the new company has no obligation to honor these orders, they have decided it is in their best interests to keep Alltrue’s customers for their relaunch.