When Gold's Gym Filed for 'Bankruptcy'
Gold's Gym is a 50 year old company, and has 700 Gyms under its name around the world. What's going on? Read on.
The international media is hyped over Gold’s Gym filing for "bankruptcy." It is a 50 year old company, and has 700 Gyms under its name around the world.
In the recent past, you may have also heard (and forgotten) about some of the Indian companies filing for bankruptcy and going “insolvent.”
So let us understand what exactly bankruptcy is.
Imagine when this lock down ends, you go out to a very fancy mall and buy all the stuff which you have forever desired - because who knows when the next calamity will strike?
Hopping from shop to shop, floor to floor, building after building, you go on swiping your credit card and oozing out money.
Satisfied from this shopping spree, you go on a long slumber for about a month and then suddenly wake to a notification on your phone:
“Your credit card statement is here. Outstanding amount INR 10,43,565.”
And now, suddenly, you want the aliens to attack the planet.
Had everything been normal (which it will be), your logical mind would make you realize that you do not have enough money to pay out your debts. Sad, isn’t it?
But wait, didn't we all happily accept and score a pointer while we learnt the basic concepts of economics? “Desire is unlimited but resources are limited.”
In the business world, we simply call this sorry state of having more loans / debt than money to pay them as being bankrupt.
A finance person would define someone who is on this state as, “a person judged by a court to be insolvent, whose property is taken and disposed of for the benefit of their creditors.”
Note how they don’t even use the word ‘bank’ in the definition.
In simple terms, the state of being insolvent can be called bankruptcy. However, our finance friend who loves jargon may define it as, “Bankruptcy is a legal proceeding carried out to allow individuals or businesses freedom from their debts, while simultaneously providing creditors an opportunity for repayment.”
That’s right. A “legal proceeding” to help bankrupt-folks achieve Nirvana.
Interesting, isn’t it? Whenever we talk about money, it is beautifully knit with lots of laws that helps the government keep the bad folks away from depriving the good ones of their rights.
Umm, right. Kidding.
However good the law makers intentions be, these bad folks always try to take some advantage out of it. And that is why if you look at India’s Income Tax Act, the volume will itself speak of the ways in which the goods folks have been trying to safeguard “the realm of honesty.” (One for you – Marvel fan).
In India, we have “The Insolvency and Bankruptcy Code, 2016” (IBC) that takes care of all bankruptcy related matters related to companies.
Now that we understand what bankruptcy means, let’s take a look at what’s happening around the world and in India.
Globally, almost every business has taken a hit due to lock downs and disrupted supply chains (here’s our story explaining what supply chain means). There are some niche segments also which have been hit hard:
a. Fitness Industry (e.g. Gyms and fitness training centers)
b. Satellite Industry (providing services to cruise and airlines)
c. Airline Industry
This is the backdrop in which Gold’s Gym, known for its acclaimed international brand across the world, filed for bankruptcy.
Filing for bankruptcy, though, does not mean selling off of all the 700 gyms. The company has only 63 owned and managed Gyms, rest of them are all operated on a franchise basis (i.e. Gold's Gym would allow a few people to use their brand name and in return ask for a commission or fee - but the gym itself is not owned by Gold’s).
In India, it operates only through the franchise model so with this filing, its Indian gym centers would remain unaffected.
Cult.fit – a popular brand in the fitness industry was also found to have been facing the heat. 800 employees were recently fired (which is approximately 16% of their staff strength) and a number of their centers permanently closed.
A few prominent players who have moved to the courts during this pandemic are:
1. Virgin Australia (Airlines - Australia)
2. Aviance (World's second oldest Airlines - US)
3. SpeedCast International Ltd. (Satellite - Australia)
4. OneWeb (Satellite Internet Startup – UK)
5. Aldo (Footwear retail – Canada)
There’s some good news too.
India has not seen any bankruptcies filed during these times and we hope we do not have to see one as we bounce back from this pandemic as a stronger economy.
However, let us also not ignore the fact that more than two-thirds of our economy belongs to the informal sector and their sufferings do not make much noise.
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