In a previous update on the German law perspective regarding bunker supplies, some significant problems associated with bunker supplies under German law were highlighted (for further details please see "Bunker supplies – maritime lien and risk of vessel arrest"). In this update, the problems and risks for vessel owners and charterers arising as a result of the contractual bunker supplier's insolvency under German maritime and insolvency law will be outlined.
Under the Insolvency Act, claims by an insolvent creditor remain enforceable (ie, an insolvent bunker supplier does not forfeit its claims for unpaid deliveries). However, due to certain restrictions imposed by the insolvency court, debtors of the bunker supplier may be prohibited from effecting payment to the insolvent company directly and may be ordered to pay to the (preliminary) insolvency administrator to discharge the debt. A direct payment to the insolvent bunker supplier will discharge the debtor only if the debtor was unaware of the bunker supplier's insolvency at the time of payment.
Creditors of the insolvent bunker supplier are not permitted to collect their claims once (preliminary)(1) insolvency proceedings against the bunker supplier's assets have been instituted. Instead, claims must be registered in the insolvency claim schedule (similar to the English proof of debt form). Once the insolvency proceedings have concluded (which usually takes at least three years), a lucky creditor may recover about 5% to 10% of its original claim.
Due to these general effects of the act, the opening of (preliminary) insolvency proceedings against the bunker supplier's assets will affect all contractual partners of the bunker supplier. The proceedings do not cause specific problems to charterers and vessel owners, as long as no third parties (in particular, banks or physical suppliers) are involved on the part of the insolvent bunker supplier. If there are, this will cause a number of problems.
There are generally two scenarios in which a vessel owner or charterer risks facing claims from third parties on top of the payment claim by the insolvent bunker supplier or its insolvency administrator.
In the bank scenario the insolvent bunker supplier has assigned all claims against its customers to a bank before insolvency occurs in order to provide security for credits granted by this bank. The problem in this situation results from uncertainty regarding the legal effect of the assignment of rights to the bank. Under insolvency law, the insolvency administrator can contest such assignments and insist on being entitled to claim payment. This can expose the customer to a risk of double payment to both the bank and bunker supplier.
Confronted with double payment or competing debt jeopardy under German law, the bunker supplier's customer (charterer or vessel owner) can pay the sum owed into an escrow account to discharge its debt. It is then for the bank and insolvency administrator to sort out the problem among themselves.
Physical supplier scenario
In the physical supplier scenario, the bunker ordered by the customer has not been delivered by the insolvent bunker supplier, but by a third-party physical supplier on behalf of the contractual bunker supplier. The physical bunker supplier has not been paid by the contractual bunker supplier and, due to the opening of (preliminary) insolvency proceedings against the contractual bunker supplier's assets, it will remain unpaid for the time being (and with luck, receive only a small dividend). This is the case even if the customer has settled its debt by paying the contractual supplier. If insolvency occurs before these funds are passed down the chain to the physical supplier, everything comes to a halt.
The problems in this scenario are more complex than those in the bank scenario. The difference is that a physical supplier has no contractual claim against the customer (charterer or vessel owner) of the insolvent bunker supplier. This means that the unpaid physical supplier can recover its loss only by exercising a maritime lien against the bunker supplier's customer and this is possible only if the customer is the vessel owner. A supply of bunkers does not grant a maritime lien under German maritime law. Thus, where bunkers have been delivered in a jurisdiction that does not grant the physical bunker supplier a maritime lien, the physical supplier will be unable to recover its loss from the vessel owner.
The involvement of third parties on part of the bunker supplier may affect both the vessel owner and charterers.
In the bank scenario, the insolvency administrator (on behalf of the insolvent bunker supplier), as well as the bank as assignee of the contractual bunker supplier's claim for payment, may pursue a payment claim against the vessel owner, in which case the owner can pay the sum into an escrow account.
Is there a claim against the vessel owner?
Under German law, the bunker contract between the bunker supplier and the charterer does not create a contractual claim against the vessel owner. This means that neither the bank nor the bunker supplier has a claim against the vessel owner. Thus, a claim against the vessel owner may be based only on a maritime lien against the vessel. However, no maritime liens for bunker deliveries are created under German law.
Physical supplier scenario
In the physical supplier scenario involving one insolvent bunker supplier and one physical supplier, neither has a contractual claim against the vessel owner, as there is no contractual relationship. Further, the insolvent bunker supplier has no maritime lien against the vessel, as it did not deliver the bunker itself. The physical supplier also has no maritime lien against the vessel – at least, not under German law.
This means that in all cases where the actual bunker delivery has been effected in a jurisdiction that does not grant a maritime lien, the physical supplier will be unable to recover its loss against the charterer or the owner. In this context, German international conflict of law rules allow for the recognition of a foreign maritime lien – so, perhaps all is not lost for the physical supplier and the owner may be faced with an unwelcome claim.
The problems and risks for vessel owners and charterers arising as a result of the insolvency of a contractual bunker supplier are complex and diverse. In particular, the different scenarios involving the vessel owner, charterer, contractual bunker supplier, its bank and the physical bunker supplier must be distinguished. Further, due to the international nature of the shipping industry, different laws and jurisdictions must be considered, depending on the contractual relations and location of bunker delivery, among other things.
Satisfactory solutions are hard to achieve. The best way forward is risk awareness when negotiating supply contracts and charterparties. When insolvency is faced, all parties must agree a settlement to avoid costly and protracted multi-jurisdictional litigation – a lawyer's dream, but a merchant's nightmare.
For further information on this topic please contact Esther Mallach, Sarah Wolf or Marcus Webersberger at Dabelstein & Passehl by telephone (+49 40 31 77 970) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org).
(1) During the preliminary proceedings the insolvency court examines whether the application for insolvency is justified under the act. Once the court is satisfied that the insolvency should proceed, the institution of main insolvency proceedings is ordered.
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