Liquidators of the Guangdong International Trust & Investment Corp (Gitic) have rejected a claim by a group of foreign banks that a loan guarantee provided by the Hong Kong arm of the company should be admitted for payment. The claim involves a syndicated loan of more than US$100 million offered by foreign banks to Guangxin Enterprises, Gitic's Hong Kong subsidiary. Gitic guaranteed the loan through its Hong Kong branch and separately provided a comfort letter. However, the company failed to register the guarantee with the State Administration of Foreign Exchange (Safe), the foreign currency regulator. The liquidation committee conditionally accepted half of the claim last year with the understanding creditors should shoulder some blame for Gitic's failure to register the guarantee with Safe. The creditors objected - citing Chinese legal opinions that guarantees outside the country did not require Safe approval or registration. Earlier this week, Gitic's liquidation committee notified the banks their objection had been rejected. Referring to a Chinese High Court document, the committee found that even though both parties used English law to write the guarantee, it was unenforceable. 'If foreign law violates the basic principles of Chinese law and also runs counter to the public interest of China society, then the law should not apply,' it said. T. K. Chang, a partner with Coudert Brothers representing the banks, said the decision was disappointing. 'To apply Chinese law to business transactions in Hong Kong in some sense violates the one country, two systems principle,' he said. The committee's decision comes as Gitic liquidators move to finish the claims process of the liquidation. Gitic was declared bankrupt in January last year with liabilities estimated at 38.78 billion yuan (about HK$36 billion). In October, company liquidators announced they had rejected 120 claims, involving 5.9 billion yuan worth of debt. Sources close to the committee said about 90 per cent of objections had been processed, with only a handful of amendments. One notable exception involved Gitic's short-term borrowing, with liquidators admitting some previously rejected claims. The liquidation committee has scheduled a third creditors' meeting in Guangzhou on October 31. It is expected creditors at that time will approve plans for the first disbursements of assets recovered since the liquidation process began.