Hanjin Shipping's collapse
In order to protect its assets from creditors following its financial collapse, Hanjin obtained a rehabilitation order in Seoul on 1 September.
Different jurisdictions / approaches
One of the main difficulties arising out of the Hanjin collapse is that whilst those administering Hanjin's rehabilitation may have taken steps internationally to protect its assets, different jurisdictions have different approaches.
For example, whilst the English Court has recognised the Seoul rehabilitation the impact of this depends upon the type of claim being brought against a Hanjin vessel.
Article 20 of the Cross Border Insolvency Regulations 2006 states that once foreign insolvency proceedings have been recognised in the UK there will be an automatic stay of certain actions, such as commencement or continuation of actions or proceedings against the debtor or its assets. Therefore, if an arrest claim is brought by virtue of a statutory right in rem it is likely that it will be stayed as a result of the English Court's recognition of the Seoul proceedings. This is the case regardless of when the claim was brought in relation to the insolvency proceedings.
However, the same cannot be said for true in rem claims. An in rem creditor has acquired a status analogous to a secured creditor, provided it has brought its claim prior to the English Court's recognition of the Seoul rehabilitation was ordered. On that basis, it is likely that such a claim would be allowed to continue despite the English Court's order. True in rem claims are limited and therefore are unlikely to pose any real risk to Hanjin's vessels.
Other jurisdictions, including Japan and the US, have also recognised the Seoul receivership. However, the US order is already the subject of challenge.
There are also jurisdictions that have not taken such positive steps. For example, two vessels on charter to Hanjin have recently been arrested in Sydney in relation to outstanding payment of bunkers whereas the US order treats chartered and owned vessels alike in preventing their arrest.
The differing jurisdictional approaches could result in vessels being moored up or remaining outside port limits to avoid the risk of arrest in those jurisdictions which have not recognised the Seoul receivership. This will cause significant delays for any party who has an interest in the cargo on board those vessels.
Alternatively, the vessels could be refused entry to the port as the Port Authorities may be unwilling to provide services in default of advanced payment. For example, it is reported in the shipping press that two vessels have been held in China where the terminals are requiring that cargo owners pay administrative charges per container before they are discharged.
In addition, some of the containers themselves are owned by Hanjin and therefore some ports are reluctant to allow their discharge through fear of being left with numerous empty containers after discharge of cargo.
It is understood that nearly 100 Hanjin vessels are believed to have been stranded worldwide, whilst approximately 6 have been arrested or detained.
Impact on international trade
The fall of Hanjin Shipping will have limited impact on international sale, purchase and finance transactions in the sense that, whilst the seller, buyer and bank remain solvent, the transfer of title and funds should occur as originally planned.
Bills of lading passing through the banking system, for example, will still provide the bank sufficient security in trading situations, provided that both the buyer and seller remain solvent. However, the buyer may encounter significant delays and possible additional costs before being able to obtain their goods at the disport, which may have a knock on effect on their supply chain and obligations to any further counterparties.
In circumstances where the buyer becomes insolvent, or is unable to pay under a letter of credit, depending on the particular arrangements in place, the issuing bank should still be able to retain the bills of lading as security and use them to take delivery of the cargo. This situation has not changed through the fall of Hanjin.
However, just as a buyer might face delays or additional costs as described above, the bank, standing in the buyer's shoes as consignee, would face these issues as well. Furthermore, for either buyer or bank standing in the buyer's shoes, where freight has not already been paid for the sea voyage, Hanjin may insist on payment prior to discharge.
That being said, the main cause of concern for those involved in international sale, purchase and finance transactions is likely to be the delay in accessing the cargo. Depending upon the particular terms in the contracts, the cost of the delay may fall to the original seller if he is in breach of any timescale for delivery obligations under the sale contract.
Things to consider
- a party in possession of the bills of lading should consider the freight implications, such as "Freight PrePaid" or "Freight Collect", and whether freight will need to be paid prior to discharge
- if freight has not been paid, it may be possible for Hanjin, or those administering the rehabilitation, to exercise a lien over the cargo
- any implications arising out of the delay under the sales contract or onward contracts which the buyer has with third parties
The effects of Hanjin's collapse will be felt for many more months to come.