US COLUmN

The Chapter 15 Case of Shipping

Ilana Volkov presents a case study in the universalist approach to cross-border administration

hapter 15 of the US relief is also available on a to “ cooperate to the maximum Code, provisional basis, that is, from the extent possible with a foreign court which is based on 10 C date of the filing of the Chapter or a foreign representative…. ” UNCITRAL’s Model Law on 15 petition to the date of What does all this mean, Cross-Border Insolvency, was recognition, “ where the relief is exactly? The Model Law’s enacted in 2005 to provide an urgently needed to protect the assets underlying philosophy was “effective mechanism” for of the debtor or the interests of the explained in an often cited dealing with cross-border 6 creditors. ” decision, In re ABC Learning insolvency cases. 1 Generally, there are two Centres, Ltd. , 728 F.3d 301 (3d Some of Chapter 15’s express schools of thought regarding Cir. 2013). There, the Court of greater legal objectives are “ multinational insolvency Appeals for the Third Circuit certainty for trade and investment ” proceedings: stated: ILANA VOLkOV fair and efficient “The Model Law reflects a Bankruptcy and Corporate and the “ 1) universalism, where a Restructuring Department of Cole administration of cross-border universalism approach to Schotz PC; Foreign Representative bankruptcy progresses as a transnational insolvency. It treats of Hanjin Shipping Co Ltd in the US that protects the unified global procedure the multinational bankruptcy as a interests of all creditors and other administered by one court, with single process in the foreign main interested entities, including the the assistance of courts in other proceedings, with other courts debtor 2 .” nations; and assisting in that single proceeding. Under Chapter 15, a foreign In contrast, under a territorialism 2 territorialism, where a debtor is approach a debtor must initiate representative may file a petition forced to file an insolvency recognition insolvency actions in each country in the US to obtain “ ” action in every country where where his/her property is found. This of the debtor’s foreign insolvency his/her property may be approach is the so-called “grab” rule 3 proceedings. If the insolvency found. 7 where each country seizes assets and proceedings are recognised as distributes them according to each 11 “foreign main proceedings, ” the It is well accepted that Chapter 15 country’s insolvency proceedings.” debtor receives important reflects a strong Congressional The Court further observed: substantial relief described preference for a “universalist” Chapter 15 creates ancillary “ 4 “ CHAPTER 15 hereafter. Among other things, rather than a “territorial” proceedings in the United States to the foreign debtor is entitled to an approach to transnational provide support to the foreign REFLECTS A immediate application of the insolvency administration, an insolvency administrator. The goal STRONG automatic stay concerning his/her approach that recognises today’s is to direct creditors and assets property located within the interconnected global economy. to the foreign main proceedings for orderly and fair distribution CONGRESSIONAL territorial jurisdiction of the US. For example, Section 1508 of the Bankruptcy Code states: “ In of assets, avoiding the seizure of PREFERENCE FOR The stay prohibits all entities interpreting this chapter, the court assets by creditors operating (except for certain limited shall consider its international outside the jurisdiction of the A UNIVERSALIST . 12 exemptions) from: commencing or origin, and the need to promote an foreign main proceedings ” continuing pre-petition judicial, RATHER THAN A application of this chapter that is The US Bankruptcy Court for the administrative or other actions or consistent with the application of District of New Jersey (the TERRITORIAL proceedings against the debtor; similar statutes adopted by foreign “Bankruptcy Court”) which recovering a pre-petition claim APPROACH TO jurisdictions. 8 presided over the Chapter 15 case against the debtor; enforcing a ” This approach is of In re Hanjin Shipping Co., TRANSNATIONAL pre-petition judgment against the further evidenced by Section Ltd. (“Hanjin”) fully embraced this debtor or the property of the 1507(b), which provides that upon INSOLVENCY universalist approach on several estate; obtaining possession of granting recognition of the foreign key occasions throughout the case. ADMINISTRATION property of the estate or exercising main bankruptcy proceedings, a This article will discuss the control over property of the estate; court may provide additional consistent with the Bankruptcy Court’s ruling and and creating, perfecting or assistance, “ principles of comity. 9 rationale for granting the foreign enforcing any lien against property ” representative’s motion for of the estate that secures a pre- Furthermore, Chapter 15 5 provisional relief. ” petition claim. Similar injunctive requires the US Bankruptcy Court 36 | Summer 2018 US COLUmN

Hanjin’s business vessels in order to enforce those and the insolvency liens. The maritime lien-holders proceedings argued their interests were not “sufficiently protected ” if they On August 31, 2016, Hanjin could not enforce their maritime commenced insolvency liens through ship arrests. proceedings in South : its Alternatively, they contended that foreign representative filed a if the Bankruptcy Court were to Chapter 15 petition in the US on impose the automatic stay on the September 2, 2016. At the time of maritime lien-holders, it should the filing, Hanjin was the largest require, at a minimum, that shipping company in Hanjin post security or file a bond and the seventh largest shipping in accordance with 11 U.S.C. § company in the world, 1522(c). transporting over 100 million tons The Bankruptcy Court of cargo per year and reportedly overruled the maritime lien- Conclusion carrying almost eight percent of holders’ objections and entered a the U.S. market’s trans-Pacific provisional order on September 9, It was critical for the Bankruptcy trade volume. Hanjin’s business as 2016, thus permitting Hanjin ships Court to grant the foreign a global carrier involved an to enter and leave US ports representative emergent relief in enormous amount of commercial “ without fear of arrest. After order to avoid disruption of THE relationships, including with discussing Chapter 15’s international commerce and necessaries ABC suppliers of “ ,” such as universalist approach and the irreparable harm not only to the BANKRUPTCY fuel. Learning case at length, the beneficial cargo owners who were COURT HAD TO Critically, at the time the Bankruptcy Court found that anxiously awaiting the receipt of Korean insolvency proceedings allowing Hanjin’s vessels to enter their cargo, but also to Hanjin and ACKNOWLEDGE were initiated, Hanjin had more US ports under protection of the its creditors. To accomplish that than a dozen US bound vessels automatic stay was necessary to result, the Bankruptcy Court had ITS ROLE IN THE protect the interests of [Hanjin’s] carrying billions of dollars of “ to acknowledge its role in the global rehabilitation and creditors OVERALL cargo, four of which were overall insolvency proceedings as as a whole. anchored or drifting outside US ” Indeed, according to an adjunct court, in other words, a INSOLVENCY territory for fear of being arrested the Bankruptcy Court, allowing court whose role was to support PROCEEDINGS by unpaid providers of the so- the maritime lienholders to necessaries and assist the court administering called “ .” Most of the enforce their individual lien rights the Korean insolvency proceedings AS AN ADJUNCT cargo was ordered in anticipation in the US would accede to a and not to indulge the parochial territorial view COURT of the holiday season. Hanjin “ ” of international interests of individual creditors. in needed emergent relief from the insolvency proceedings “ By directing adjudication contradiction to Chapter 15’s clear Bankruptcy Court: and payment of the claims of directive. i) to ensure the cargo could be ” Furthermore, the all unpaid creditors to the foreign delivered to its owners and to Bankruptcy Court rejected the main proceedings in Korea, the avoid enormous economic lienholders’ request for security, Bankruptcy Court stayed true damage to them, and finding that Hanjin did not have to the purpose and intent of ” I ii) to get paid for its work and the financial wherewithal to Chapter 15. generate revenue for continued provide any letters of credit or operations. Footnotes: bonds and, in any event, their 1 See 11 U.S.C. § 1501(a). claims could and should be 2 Id . The provisional order 3 The term “foreign representative” is defined administered in Hanjin’s main in Section 101(24) of the US Bankruptcy and the maritime insolvency proceedings in Korea. Code to mean “a person or body, including a lienholders’ objections person or body appointed on an interim The Bankruptcy Court ultimately basis, authorised in a foreign proceeding to concluded that Hanjin’s foreign administer the reorganisation or the To obtain this essential provisional main proceedings “ will be better of the debtor’s assets or affairs or relief, Hanjin’s foreign off, to act as a representative of such foreign ” as a whole, if the vessels were proceeding.” representative had to demonstrate, able to deliver the cargo promptly. 4 See 11 U.S.C. § 1520. among other things, that creditors 5 Id . at § 362(a). The maritime lienholders 6 Id . at § 1519. and other interested entities were were unhappy with the 7 Jay Lawrence Westbrook, Chapter 15 at Last , “s ufficiently protected. ”13 The 79 Am. Bankr. L.J. 713, 715 (2005). Bankruptcy Court’s decision and 8 11 U.S.C. § 1508. primary objectors to the request filed a motion for reconsideration. 9 Id . at § 1507(b). for provisional relief were the 10 Id . at § 1525. necessaries The Bankruptcy Court denied 11 Id . at 307 (internal citations omitted). unpaid providers of “ ,” 12 Id . at 306-307 (internal citations omitted) that motion; the denial was Share your views! who asserted statutory maritime (emphasis supplied). affirmed on appeal by the District 13 See 11 U.S.C. § 1522(a). liens on account of their pre- Court. The maritime lien-holders’ petition claims and wanted the further appeal to the Circuit Court ability to arrest Hanjin’s inbound was dismissed as moot.

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