HANJIN SHIPPING BANKRUPTCY UPDATE: 9.20.2016
HANJIN SHIPPING BANKRUPTCY UPDATE
Hanjin’s receivership filing reported that $14 billion worth of cargo was in transit on Hanjin ships. Hanjin’s receivership caused U.S. ports to refuse entry to Hanjin ships, creating havoc for cargo owners, NVOCCs and trucking companies. On September 7, 2016, New Jersey Bankruptcy Court granted Hanjin Chapter 15 provisional relief. See In Re: Hanjin Shipping Co., Ltd. Case No. 16-27041 (JKS).
The initial bankruptcy hearing was attended by various interested parties including bunker suppliers, container owners and cargo owners. By this time, Hanjin had already been sued for vessel arrest by certain U.S. creditors. A key issue for the Court was how to allow Hanjin to continue to operate free from vessel arrest while allowing cargo owners to obtain delivery of their cargo. Since September 7, 2016, some ports have allowed entry to some Hanjin ships on a ‘pay as you go’ basis. The issue of delivery of cargo to the cargo owners was addressed by the Court, and the Court issued a Final Provisional Order on September 9, 2016.
The Provisional Order sets forth a mechanism for cargo owners to obtain delivery of their cargo. Creditors with liens such as NVOCCs have their liens intact, however creditors cannot cause a vessel arrest or otherwise take steps against Hanjin’s assets through exercise of their liens. Rather, creditors with liens, such as carrier or warehouse liens, may agree with cargo owners to release cargo upon satisfaction of the creditor’s lien.
Hanjin must allow delivery of cargo where the cargo owner pays Hanjin all freight owed, except freight that has already paid for inland carriage will not be credited to the cargo owner. This means that once Hanjin is paid for ocean carriage, cargo owners will need to negotiate with NVOCCs to pay them for inland delivery of cargo in exchange for release of lien by the NVOCC.
Several NVOCCs have filed a motion with the Court to extend the Court’s Provisional Order to the NVOCCs so that NVOCCs also have rights to obtain release of containers similar to the cargo owners’ right to delivery of cargo. If granted, this should speed up release of containers by Hanjin and delivery of cargo to cargo owners. That motion is set for hearing on September 23, 2016. We will provide you with a client update upon the Court’s ruling on the NVOCCs motion.
In the meantime the following is a summary of some of the provisions of the Court’s September 9, 2016, Order Granting Provisional Relief:
Beginning at page 5 of the Order:
Para. 1: Hanjin’s motion for relief is granted.
Para. 2: The Korean bankruptcy order is given full force and effect in the United States. No action may be taken against Hanjin or its assets in the U.S.
Para. 3: The order and section 362 of the Bankruptcy Code operate as a stay against execution against any of Hanjin’s assets in the U.S.
Para. 4: Prohibited actions include:
• No execution against any Hanjin assets
• No pursuit of any claims or actions against Hanjin or its assets
• No enforcing liens against Hanjin or its assets, or any property leased, operated or managed by Hanjin
• No transfer of Hanjin assets without consent of Hanjin or its affiliates
• No individual actions against Hanjin, its assets or its rights or liabilities
• No terminating any contracts or leases with Hanjin
• No action to obtain possession or control of Hanjin assets or related assets
• No attaching Hanjin vessels or equipment
Para. 5: Hanjin consents to unloading of any containers that have been paid for.
Para. 6: The order does not affect creation or continued existence of possessory liens, or require any party to relinquish any possessory lien, but vessel arrest is not permitted.
Para. 13: Order is effective immediately.
Para. 15: The court has exclusive jurisdiction over the Order.
Para. 16: Parties have right to seek relief from the Order.
Para. 1: This applies to cargo not yet berthed, worked by terminal and not inland. Beneficial owner of cargo may enter into contracts with third party logistics and service providers (Release Agreement) to obtain delivery of cargo. Beneficial owner must pay or have paid Hanjin the full ocean freight charges less:
• Amounts already paid Hanjin for the cargo
• Amounts to be paid to third parties for the cargo at Hanjin’s regular contracted rates (amounts already paid to third parties for the cargo are not deducted)
Para. 2: If Hanjin fails to cooperate, the beneficial owner or third party logistics carrier may seek relief from the Court. Third party logistics and service providers may release cargo to the beneficial owner upon payment agreed by parties, and release shall be without any liens, claims or interests or liability related to the cargo, including disgorgement or avoidance. This means that, if Hanjin does not cooperate to release cargo, logistics providers may release cargo to beneficial owners upon payment of amounts due to the logistics providers for the cargo – the beneficial owner then has a claim against Hanjin.