A debt ridden aviation fuel supplier is contesting a bank's claim for around US$13 million.

Singapore registered China Aviation Oil (CAO) argues that Sumitomo Mitsui Banking Corporation (SMBC) acted in breach of mandate when it accepted non-compliant documents in a letter of credit (L/C) transaction.

Creditor pressure

Beleaguered CAO is under pressure from a burgeoning number of creditors seeking legal remedies against the aviation fuel supplier.

Member of the Sumitomo Mitsui Financial Group, SMBC is listed the fourth largest creditor in CAO's proposed debt restructuring plan filed in January.

Not liable

According to a CAO statement it is "denying liability for the purported claim by SMBC for about US$13,061,788 under the alleged Trust Receipt Loan Facility."

The statement says CAO "is of the view that SMBC had acted in breach of mandate when it accepted documents in non-compliance with the terms of the letter of credit."

Simply debt

The aviation fuel supplier says the bank's claim is "simply a claim for a debt" and CAO dismisses SMBC's claim to hold the sales proceeds in relation to a specific transaction of jet fuel cargo on trust for the bank.

"The company is of the view that this claim is misconceived and has no basis," according to the CAO statement.

Legal disputes

The L/C dispute with SMBC is one of many currently being fought by CAO which collapsed in November 2004 after running up trading losses of US$550 million as a result of oil derivative dealings that went wrong.

Creditors taking legal action against CAO include South Korea's SK Corporation, which claims US$14.3 million and Indonesian-owned Satya Capital, which is claiming at least US$47.2 million from CAO and related companies over a failed share deal.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.