Red Flag Alert: When Chinese Suppliers Involved in Many Lawsuits

You should find out in advance whether your business partners in China are involved in excessive litigation.

A client contacted us to help him recover a multimillion-dollar payment for goods.

He purchased a shipment of medical supplies from a Chinese enterprise at the start of the COVID-19 pandemic and paid millions of dollars in advance. However, two years later, the Chinese enterprise still had not delivered any shipment.

In the past two years, he had communicated with the Chinese supplier several times, and constantly revised the delivery date and the goods in the order at the Chinese supplier’s request. Six months ago, he finally lost patience and wanted to recover the payment.

To start with, we helped him to do initial due diligence on the Chinese supplier.

Then, we found that the actual controller of this Chinese supplier had registered nearly ten enterprises in different Chinese cities. These enterprises all had similar names, most of which were established at the start of the pandemic, with their scope of business involving the sale of medical supplies. Moreover, most enterprises got involved in lawsuits related to the sale of goods.

What does it mean?

We guess that their actual controller registered these enterprises quickly, and taking advantage of the shortage of medical supplies in the market at the start of the epidemic, signed contracts with many buyers to get a lot of payment.

It is very likely that he then moved the funds through these shell companies to untraceable destinations. Thereafter, even if he is involved in a lawsuit brought by the purchaser, the purchaser has no way to get these enterprises to pay out.

Tips：

Verify a Chinese enterprise before you sign a contract. If you find risks, at least you can set more careful terms of the transaction rather than paying too much upfront.

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Do you need support in cross-border trade and debt collection?
CJO Global's team can provide you with China-related cross-border trade risk management and debt collection services, including: 
(1) Trade Dispute Resolution
(2) Debt Collection
(3) Judgments and Awards Collection
(4) Bankruptcy & Restructuring
(5) Company Verification and Due Diligence
(6) Trade Contract Drafting and Review
If you need our services, or if you wish to share your story, you can contact our Client Manager: 
Susan Li (susan.li@yuanddu.com).
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Photo by Nic Low on Unsplash