Eastern Wire Plc (EWC) has taken legal action against Siam General Factoring Plc (SGF) on allegations of loan default involving promissory notes.

"Our company proceeded with a case against SGF in the Civil Court on August 24, 2006," the company said in a report to the Stock Exchange of Thailand.

Eastern Wire's legal action follows the transfer by Siam General Factoring of seven accounts receivable in settlement of a Bt500-million debt connected to two batches of promissory notes.

According to a recently amended agreement between the two companies, Eastern Wire will accept only cash repayments to settle the debt.

The transfer process occurred while the two sides were negotiating a draft agreement to transform the promissory notes into a long-term loan agreement. The agreement also set new repayment conditions between the companies, removing an option under which Siam General Factoring could make payments in accounts receivable and stipulating cash as the only means of repayment.

Siam General Factoring's seven accounts receivable involve Bt190 million from JJ Land Development, Bt120 million from Rama 9 Trading and Service, Bt60 million from Theerapat Industry Corporation, Bt50 million from Net Active and Service, Bt30 million from both Sahaphon Transport and Sri Pattana Textile and Bt20 million from Pracha Weaving Industry.

Five of the seven companies were found by the SET to have relationships with Eastern Wire. However, Eastern Wire said it had a business relationship with only two of them - JJ Land Development and Net Active and Service -and it has never had any agreement with Siam General Factoring, either verbally or in writing, that it would give loans to the seven companies.

On a previous occasion, Eastern Wire lent Bt328.7 million to JJ Land Development, from which it rented space in the SVOA Tower. It also had a joint investment project with Net Active and Service. The controversial promissory notes, worth Bt500 million, were mentioned by both Siam General Factoring and Eastern Wire when they posted hefty net losses in the second quarter of this year.

Eastern Wire Plc reported a second-quarter net loss of Bt516.32 million after setting aside reserves to cover the doubtful Bt500-million loan to Siam General Factoring. SGF's second-quarter net loss of Bt587.66 million pointed to the establishment of increased allowances to finance its Bt500-million debt to Eastern Wire.