Note: The operator of a wholesale fruit and vegetable business in Hong Kong maintained credit facilities with Wing Hang Bank Limited. As the business became overextended, it sought release of collateral securing outstanding obligations and, to obtain release, made payments to reduce its debt. The company subsequently was placed in liquidation. The liquidator sought to recapture these payments amounting to HK$ 16,300,000 as fraudulent preferences under Hong Kong Law which deemed any payment made within six months before commencement of its winding up to be impermissible in preference over other creditors. This amount included HK$ 4,720,000 for unutilized LCs that had been opened. The court rejected the liquidator's position and disallowed inclusion of the amount, stating that "the Bank never advanced any part of this $4.2 million. It follows that it was never in a position to submit a proof of debt in respect of this amount. The corollary must be that the Company was not indebted to the Bank in relation to letters of credit which had not been utilized.".


The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.