More than 10 Hong Kong based toy suppliers plan to take export trader and agent Li & Fung to court because they say it failed to honour letters of credit (L/Cs).

The L/Cs were issued to pay the suppliers for toys sold to bankrupt US retailer KB Toys before it collapsed last year.

Payments stopped

Li & Fung stopped honouring L/Cs to suppliers of KB Toys as early as June, Ricky Ng Wai-bong, a spokesman for the Joint Committee for Li & Fung Creditors, told local media.

The Massachusetts-based toy retailer filed for bankruptcy in December.

Writs awaited

Ng said more than 10 factories plan to file writs against Li & Fung following a meeting of the committee.

"We're not going to let them get away with this," said Ng who added that the factories felt "short changed" by an entity they had regarded as trustworthy.

Trader or agent?

A root issue in this matter will be the capacity in which Li & Fung acted in deals.

Li & Fung has apparently claimed that L/Cs opened on behalf of KB Toys could not be honoured until Li & Fung was paid.

The L/Cs were issued "by Li & Fung as KB Toy's agent," a spokeswoman for Li & Fung has said.

Counter claims

One factory manager, however, disagrees with Li & Fung's contention that it need not pay the suppliers because they invoiced directly to KB Toys, not to Li & Fung.

He says the L/Cs issued by Li & Fung did not specify that payments to the suppliers were subject to Li & Fung being paid by KB Toys.

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