Registration with SAFE, however, is merely a necessary requirement, and does not guarantee a debt's validity or repayment. Comfort letters are not enforceable . Comfort letters have often been used in financing transactions in China as a substitute for guarantees. Comfort letters are actually commonly used in business transactions in the US and elsewhere. Although they may not always be legally enforceable, they function by force of moral obligation, and public relations embarrassment if reneged upon.
Comfort letters are enforceable in certain cases under English law.
Gitic's bankruptcy confirmed that under Chinese law, comfort letters that are really disguised guarantees, which have not been registered with and approved by SAFE, are unenforceable. Treat Chinese legal opinions with caution . Gitic's bankruptcy was perhaps most unjust for foreign lenders which had made loans to Gitic's Hong Kong subsidiaries that were guaranteed by Gitic's unincorporated branch in Hong Kong. One of these law firms has since seemingly vanished, leaving no forwarding address or phone number. The lawyer who had signed one of the other opinions has since left his law firm, and when finally reached by phone, has disavowed responsibility for the opinion.