Claims Case Sharing

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Case 1 - Insolvency

Background of the case

  • The buyer was established in 1930s, operating as a retailer of apparels in the UK on a large scale with hundreds of stores and thousands of employees.
  • The policyholder shipped goods to the buyer under mutually agreed contracts of sale with payment term of document against acceptance (DA) 60 days.
  • The buyer went into administration and failed to honour obligation under the contracts of sale, including payment for the goods received and the shipment in-transit.

Loss minimisation action

  • The policyholder contacted the administrator to ascertain whether it was willing to take up the goods in-transit.
  • On receipt of the administrator’s agreement, the policyholder successfully found a new buyer to take over the shipments in-transit at a discounted price.

Registration of debt with administrator

  • The policyholder registered the debt with the administrator, and eventually, less than 1% dividend was distributed by the administrator to the policyholder as an unsecured creditor.

The ECIC’s claims payment to the policyholder

  • For the case, the ECIC made claims payment to the policyholder after examination of documents in an amount equivalent to 90% of the policyholder’s loss caused by payment default of the buyer. With the claims payment, the policyholder’s loss was substantially minimised.

Conclusion

  • Withholding shipments in possession and arranging proper storage and insurance is important for minimising loss
  • It is necessary to seek the administrator’s agreement to disposal of the goods in-transit to ensure that the policyholder has a free hand in the disposal of the goods legally for minimising loss and without losing the rights under the relevant contracts of sale.
  • Timely registration of the debt with the administrator is also important for debt recoveries.

Case 2 - Payment default

Background of the case

  • The buyer was established in 2000s, operating on a large scale in diversified business, including commodity trading, and software and hardware development, etc in Mainland China.
  • The policyholder shipped goods to the buyer under mutually agreed contracts of sale with payment term of open account (OA) 60 days.
  • The buyer failed to pay on due dates on account of poor sales and tight cashflow.

Loss minimisation action

  • Despite repeated payment demands to pursue payment from the buyer, the buyer failed to provide a reasonably acceptable repayment plan.
  • With the assistance of the ECIC, the policyholder appointed a professional consulting firm to pursue payment from the buyer.
  • The buyer still had no intention to make payment, claiming that the goods had remained unsold, the consulting firm advised the policyholder to take legal action against the buyer to recover the debt.

The ECIC’s claims payment to the policyholder

  • For the case, the ECIC made claims payment to the policyholder after examination of documents in an amount equivalent to 90% of the policyholder’s loss caused by payment default of the buyer. With the claims payment, the policyholder’s loss was substantially minimised.
  • After claims payment, the ECIC continued to assist the policyholder in pursuing debt recoveries from the buyer. Meanwhile, the policyholder accepted the consulting firm’s suggestion to take legal actions against the buyer.
  • With the assistance of the consulting firm, the policyholder obtained a judgment from the court that the buyer had to pay the debt plus interest to the policyholder within a specified period after the judgment.

Conclusion

  • In pursuing debt recoveries, policyholder has to take actions promptly and decisively and steps up the recovery actions as necessary.
  • The buyer’s financial condition and payment ability has to be taken into account in making choices of the means for debt recoveries and feasibility of a repayment plan.
  • Maintaining a close relationship with debt collection or consulting firm and timely monitoring the progress is helpful in pursue of the debt.

Case 3 - Contract repudiation - refusal to take delivery of goods

Background of the case

  • The buyer was established in 1980s, operating as a retailer of furniture in the US on a large scale with a number of stores and hundreds of employees.
  • The policyholder shipped goods to the buyer under mutually agreed contracts of sale with payment term of open account (OA) of 10 days.
  • On arrival of the goods at the destination, the buyer refused to take delivery of the goods on account of tight cashflow.

Loss minimisation action

  • The policyholder in writing strongly requested the buyer to take delivery of the goods within the specified time period, or the goods would be re-sold and the buyer would be held liable for all of the losses. However, the buyer refused.
  • The policyholder afterwards resold the goods to a new buyer at a discount, and suffered resale loss.
  • With the ECIC’s assistance, the policyholder appointed a debt collector to recover the losses from the buyer, yet the buyer filed bankruptcy afterwards.
  • With the help of the debt collection, the policyholder registered the debt with the liquidator.

The ECIC’s claims payment to the policyholder

  • For the case, the ECIC made claims payment to the policyholder after examination of documents in an amount equivalent to 90% of the policyholder’s loss caused by contract repudiation of the buyer. With the claims payment, the policyholder’s loss was substantially minimised.

Conclusion

  • In face of contract repudiation with the buyer’s refusal to take delivery of the goods shipped, the policyholder has to take actions promptly and decisively to resell the goods for loss minimisation, and in writing to hold the buyer liable for consequential losses.
  • However, it is very difficult to establish damages and recover the same from the buyer for contract repudiation.
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