Bottom line: A new Hong Kong lawsuit against LeEco by a small creditor over unpaid bills could mark the start of a new wave, which could ultimately snowball into a new crisis as its partners scramble to get back money they're owed before it's too late.

I've been skillfully avoiding writing about the embattled LeEco (Shenzhen: 300104) for the past month, even as the former online video high-flyer landed at the center of a storm that could ultimately result in its downfall. So a small story in the latest headlines, involving a lawsuit against the company over unpaid bills, looks like a good opening to take a quick look at a high-tech tale that consumed the Chinese headlines for much of last month.

I'll admit one reason for not writing about LeEco were part laziness, as the story was quite complex. But another was simply the fast-changing nature of the story. At one point barely a day would go by without another new revelation about LeEco's huge debt pile and its inability to pay its bills, even as the company denied many of the reports. Yet another reason for not writing sooner was a desire to avoid gloating, since I've previously predicted many times that the company was almost certain to face this kind of crisis.

For now, at least, the crisis seems to have subsided, which makes this seem like a good time to look at the story and predict what's next. The latest headline comes from Hong Kong, where the publisher of the Economic Times newspaper has sued LeEco for failing to pay its bills for previous advertising. (Chinese article) The amount owed is quite small, HK$535,000 or about $69,000 to be precise, which was for advertising run over a 3-month period between August and November.

There's not too much more to say about this lawsuit, since it's so small. But the smallness of the debt is probably the main reason Economic Times decided to file the suit in the first place. Many other companies are owed far bigger sums by LeEco, originally an online video company whose woes stem from its rapid expansion into a wide range of new areas over the last 2 years, including new energy cars, smartphones and filmed content production.

A quick recap of the past month would be difficult due to the many reports that came out during that period. But the central theme was that LeEco's rapid expansion had left it reportedly unable to pay its bills and facing a cash crunch. A focal point of the storm was in the US state of Nevada, where work had reportedly ground to a halt on a $1 billion electric car plant that LeEco was building in partnership with local firm Faraday Future.

Working Overtime

LeEco's charismatic but also a bit overzealous founder Jia Yueting has been working overtime to try and reassure everyone his company isn't on the brink of a crisis. He admitted at the outset that perhaps he had expanded too fast and needed to become more conservative, and later called on some of his business school buddies to pledge millions of dollars in new funds to support the company. 

All of that brings us back to the present, where this Hong Kong lawsuit may represent a hint of what's to come for the company. As I've said above, many of LeEco's creditors are quietly hoping the company will pay them back and therefore are staying mum about the situation. The Economic Times obviously feels the amount of money it's owed doesn't merit that kind of discretion, and thus is feeling a bit bolder about stepping up to fight for the funds before anyone else.

I suspect other small creditors may quietly follow suit with similar claims, figuring their actions could prompt LeEco to pay them off to avoid negative publicity. But as bigger creditors see smaller ones taking action, they could grow increasingly anxious that funds are running out and they may never get repaid.

Thus some might interpret this small action in Hong Kong as an early indicator of a coming snowball effect that ultimately turns into a flood as panicked creditors all try to get some funds from LeEco before it faces a true crisis. If that's the case, which looks quite possible, the current period of relative quiet could be just the calm before the big storm, and the new year could see LeEco's crisis return even bigger and louder than before.