Chinese New Year is a time of year when:
⦁ workers in the cities of China head home to the countryside to enjoy the long vacation.
⦁ Factory owners send them off with a big banquet, pockets full of “lucky money” packets and the promise of a “month #13” bonus when they get back.
Chinese New Year is also a time when:
⦁ factories find all sorts of excuses for why they are not meeting promised targets for pricing, quality and lead times.
⦁ And if a Chinese supplier owes you money, they will certainly try to use the holiday as an excuse for why they can’t pay you now, even after spending lavish amounts on holiday parties!
⦁ When factory bosses find themselves on the verge of bankruptcy, now is the most convenient time to close up shop and go into hiding as staff are away for Chinese New Year and creditors are not looking.
By far, the single most frequently asked question I get in my inbox in the weeks surrounding the Chinese New Year goes something like this:
My supplier is telling me he didn’t receive the recent transfers and he isn’t shipping the order. My bank is telling me that the transfer went through fine. I want to know what is the process if he indeed received the money but denies it. He also says he will be away for 2 weeks because of the Chinese New Year holiday! Please help”
Here is how I answered the question today on behalf of AsiaBridge Law , where I serve as a business advisor.
Thanks for your email. With Covid putting economic pressure on many Chinese suppliers, we are hearing the excuse you state below over and over again.
If you have clear proof the funds were sent to the pre-agreed address, and if the Chinese entity is playing games, then I would suggest you have our Chinese lawyers issue a demand letter.
It’s fast and affordable.
BTW, it is not uncommon for Chinese companies on the verge of bankruptcy to give excuses like the one you mention. It gives them time to hide the assets or close-up shop. So, you will want to act fast to get some transparency about what is actually going on. The longer you wait, the harder it could be to resolve.
Keep in mind that yesterday China started its long New Year Holiday. If Chinese companies are about to go out of business, this is the ideal time for a number of reasons:
⦁ Avoid the “month 13” holiday bonuses
⦁ Close up while all the staff are far away in their hometowns for the holiday
⦁ Give owners/management a window to hide before suppliers/customers/creditors know they are gone
What is a Demand Letter?
In simple terms, a Demand Letter is essentially a “threat” delivered by a Registered Chinese lawyer.
Having a Chinese registered lawyer issue the demand letter shows the target entity you are serious and they have one last chance to resolve the issue before going to court in China.
Since overseas courts have no jurisdiction in China, Chinese companies tend to ignore demand letters written in English or sent from a non-Chinese lawyer. For these reasons, a Registered Chinese Lawyer will issue the demand letter.
Demand Letter Expectations
The goal of the demand letter is to get the attention of the target company, help the client settle out of court and ideally gain a resolution that is acceptable to the client.
⦁ There is no guarantee that the demand letter will succeed in recovering some or all of the client’s loss.
⦁ On average, 30% of cases are closed to client’s satisfaction during the demand letter phase. The remaining 70% of the cases are either moved to court, dropped by the client or the client elects to continue negotiations with the target on their own.
⦁ Demand letters fail for a number of reasons, but the most common three are:
⦁ target company has gone out of business, is broke or doesn't care about its brand/reputation.
⦁ target company gambles the client is not willing to go to court
⦁ client's demands are excessive per Chinese legal standards or the client has a weak case
If the demand letter is not successful and I need to go to court, do I have a strong case from a Chinese law perspective? How much does a court case cost in China?
Please visit this page for a detailed answer.
Why not skip the Demand Letter and start with litigation, police action or a debt collection agent?
The simple answer is that those options require a much larger investment in time and money. Demand Letters are far less costly and can be enacted in a matter of days/weeks rather than months/years.
While not always successful, Demand Letters do provide the "most bang for the buck".
How much does the Demand Letter cost?
The Demand Letter Service is invoiced as a fixed fee and no commission is applied to the recovered funds. You can download the latest rate sheet here. Below is an overview of the service offering:
I’m happy to answer any additional questions you may have. Should you like to move forward with the Demand Letter Service, I can issue a service agreement, invoice and introduce the paralegal who will coordinate the project.
Please advise at your convenience.
Glad to help!