General Contractor entered into a supply contract with Material Co to buy various construction materials at a total price of RMB 20 million yuan. Under the contract, Material Co would provide the first shipment of construction materials, worth RMB 6

General Contractor entered into a supply contract with Material Co to buy various construction materials at a total price of RMB 20 million yuan. Under the contract, Material Co would provide the first shipment of construction materials, worth RMB 6 million yuan, within 10 days after the conclusion of the contract and General Contractor would make the first payment in 90 days after receipt of the materials. To secure the payment by General Contractor, Huadong

Holdings Co issued a letter of guarantee to provide a guarantee of RMB 6 million yuan in favour of Materials Co. Five days after the conclusion of the contract, Material Co delivered the first shipment to General Contractor.

Due to a dramatic increase of various costs, General Contractor was unable to settle the debts owed to its suppliers or sub-constructors and was declared bankrupt by its creditors. The court confirmed the application of bankruptcy and designated a bankruptcy administrator. Materials Co did not know about the bankruptcy of General Contractor and did not declare its credit because it was located in another province.

Having known the information about General Contractor’s bankruptcy, Huadong Holdings Co came to declare its credit as a guarantor for the preliminary payment. The bankruptcy administrator held that Huadong Holdings Co was not a qualified creditor as it had not borne its guarantor’s obligation and refused to accept the declaration of credit by Huadong Holdings Co.

Required:

Answer the following questions in accordance with the Enterprise Bankruptcy Law, and give your reasons for your answers:

(a) discuss whether Huadong Holdings Co should be a qualified creditor of the debtor given that it had not borne its guarantor’s obligation;

(b) discuss whether Huadong Holdings Co was entitled to declare its credit if Materials Co came to declare its credit of RMB 6 million yuan against General Contractor.