A California Importer defaulted through bankruptcy

A hosiery company in Zhejiang, China (“Zhejiang Company” ) signed a sales contract with a California company (“California Importer”)  through the Canton Fair to export more than US$300,000 of socks. After the Zhejiang Company delivered the goods, the California Importer did not make the payment as agreed in the contract, and the Zhejiang Company kept demanding the payment but failed. A few months later, the Zhejiang Company received a lawyer's letter from the California Importer stating that the California company was preparing to apply for bankruptcy to the court due to poor management and drastic changes in market conditions. The California Importer would pay US$2,000 if  the exporter can sign a confirmation letter.

After accepting the entrustment, we contacted the California Importer, and the California Importer had filed for bankruptcy in the US court. After investigation, the California Importer’s shareholder is a Middle Eastern American, who also registered another company in California. The owner used the other company to continue to do business with Chinese suppliers and purchase large quantities of clothing, hats, footwear and other products, and he was still active in the Canton Fair.

Lessons and enlightenment:

1. When exporting goods, foreign trade enterprises should pay attention to the security of recovering the payment, and require the counterparties to adopt payment methods such as letter of credit or bank collection, and try to ensure the control of the goods or the title of the goods before receiving the full payment. In case the goods have been delivered to the buyers before fully receiving the payment, the recovery of the payment can only rely on the conscience of the other party. Generally speaking, when the benefits are large enough, human nature should not be easily tested.

2. foreign trade companies must pay attention to the counterparty's credit investigation, and master the counterparty's credit information as much as possible. In the case of large transaction , foreign trade companies should entrust lawyers to conduct necessary investigation, carefully evaluate transaction risks and resolutely abandon orders with high and uncontrollable risks.