The Korean car distributor merger in the Philippines

by IA Group

A Philippine automotive corporation bought a fleet of SUV cars from a leading Chinese car exporter. After the Philippine corporation made the down payment, the Korean car distributor shipped the vehicles to the Philippines in excellent condition. Unfortunately, the Philippine buyer failed to pay the balance owed for these cars. Attempts by the seller to recover the rest of the payment were futile. IA’s client, a Chinese credit insurance corporation, sought IA’s assistance to recover the multi-million dollar amount owed by the buyer.

The Philippine company, meanwhile, had merged with a major distributor of a well-known Korean carmaker. Being legally liable for the debts of the merged company, the Korean car distributor became the formal debtor.

IA’s legal team approached the debtor company’s accountant, who – understandably - asked for the invoices and sales contracts to be mailed to them. He needed to verify the debt inherited from the merged company. In the meantime, IA’s lawyers researched the articles of merger and corporate documents and discovered that the Korean car maker’s distributor was a reputable corporation doing very well.

IA’s local counsel in the Philippines set up a meeting with the CEO and VP of the debtor corporation to amicably discuss the situation. The officers cooperated at first, but after some time, they became evasive. Our lawyers then served the company a legal demand letter, which prompted the debtor to respond immediately.

The debtor’s CEO now alleged that they had warranty claims for the delivered vehicles against the Chinese exporter. He stated that they are still finalizing their claims in connection with the Manufacturer’s Warranty. In other words: he wanted to offset or reduce their warranty claims against their debt to the car exporter. Reducing the warranty claim by itself is an accepted practice. However, when IA requested the debtor provide competent proof of their allegations, there was no satisfactory response. Furthermore, according to Philippine law, IA’s lawyer pointed out a clause regarding implied warranty in all sales contracts against hidden faults or defects. For actions based on breach of an implied warranty, the prescriptive period is six months from the date of delivery of the goods. At this point, eight months have gone by. The seller’s export credit insurer commissioned IA since the creditor delivered the goods to the Philippines. Thus, the debtor failed to file a legal action within the prescribed warranty period.

Months of follow-up calls and emails to the company’s top management followed. Continuing pressure on the debtor, IA’s representatives tapped business contacts of the debtors’ company, which was deemed successful. The Chinese exporting company received the total amount of the debt from the Korean auto distributor.