1. Commencement of Rehabilitation Proceedings by Hanjin Shipping Co., Ltd. (“Hanjin Shipping”) On August 31, 2016 Hanjin Shipping filed a rehabilitation petition with the Seoul Central District Court. The Case number is Seoul Central District Court 2016 HoeHap 100211. On August 31, 2016, the Bankruptcy Division of the Seoul Central District Court issued a comprehensive prohibition order, as a provisional measure, to all creditors. This order prohibits all creditors from any provisional attachment, attachment, or exercising any security right until a judgment is rendered on the rehabilitation petition. On September 1, 2016 the court issued an order to commence rehabilitation proceedings. 2. Schedule of the Rehabilitation Procedure The schedule of the rehabilitation procedure, as revised by a court order dated September 12, 2016, is as follows: ① Period for the administrator to submit a creditors list: September 1, 2016 – October 10, 2016. ② Reporting period for rehabilitation claims: October 11, 2016 – October 25, 2016. ③ Investigation period for rehabilitation claims: October 26, 2016 – November 15, 2016. ④ First creditors meeting: December 9, 2016 at 14:00. ⑤ Due date for submission of a draft rehabilitation plan: December 23, 2016. ⑥ Second and third creditors meetings for the discussion of and resolution on the draft rehabilitation plan: undecided. ⑦ Date of decision of the court on the rehabilitation plan adopted by the creditors meeting: undecided. 3. Several Points of Concern During the Process of the Rehabilitation Proceedings 1) Creditors must report their claims during the claim reporting period, and the claims that are not reported may be subject to forfeiture. In this regard, if there is an objection to the reported claim amount, a motion for confirmation of the objected claim must be filed with 4. Major Legal Issues 1) Foreign creditors Foreign creditors are treated equally as domestic creditors in the rehabilitation proceedings in Korea and are not unduly discriminated against. 2) Recognition of Korean bankruptcy procedure in foreign countries In order for the commencement of a bankruptcy procedure in Korea to be effective in foreign countries, an application for the recognition of the bankruptcy (or rehabilitation) procedure must be made in the courts of each foreign country. The bankruptcy procedure is recognized in the countries that follow the UNCITRAL Model Law (such as the U.S., the United Kingdom and Japan), and executions, enforcements or the like on or against Hanjin Shipping’s assets (such as its ships) located in such countries are prohibited. However, in foreign countries that do not recognize foreign bankruptcy procedures, it is difficult to obtain any assistance regarding Korean bankruptcy proceedings. An application for the recognition of Hanjin Shipping’s Korean bankruptcy proceedings is currently in progress, for example, in the U.S. and Japan (a recognition decision has already been rendered by the Japanese court). Even if a foreign court recognizes the Korean rehabilitation proceedings and thus attachments of Hanjin Shipping’s ships or other assets are prohibited, it would be difficult to prevent a rejection of cargo loading or unloading if the rejection is based on, for example, nonpayment of the cargo handling fees. In cases where the transportation of goods is delayed the court within one (1) month from the last day of the claim investigation period. For creditors’ debt owed to Hanjin Shipping which arose before the commencement of the rehabilitation proceedings, such creditors may set off such debt against any of their rehabilitation claims against Hanjin Shipping, provided that the creditors must notify Hanjin Shipping's administrator regarding such setoff within the claim reporting period. Creditors must be careful about the requirements and restrictions regarding setoffs of mutual debts and credits between the debtor and creditors as provided for under the Korean Bankruptcy Law. 2) Creditors may submit their opinions at each step of the rehabilitation proceedings. 3) Approval of a draft rehabilitation plan by the creditors meeting requires both at least a 3/4 vote (of the overall rehabilitation secured claim amount) from the rehabilitation security creditors group and at least a 2/3 vote (of the overall rehabilitation claim amount) from the rehabilitation creditors group. due to the non-payment of harbor dues, cargo handling fees, fuel costs, etc., in general such issue can only be resolved by Hanjin Shipping making the necessary payments. 3) Executory contracts The administrator of a rehabilitation proceeding (such as the Hanjin Shipping’s rehabilitation proceedings) may elect to assume or terminate an executory contract. An executory contract is a contract under which (i) neither party to the contract has completed performance of its obligations at the time of the commencement of the insolvency proceeding and (ii) each party has an obligation to be performed as consideration for the performance of the obligation by the other party (for example, a purchase and sale agreement or a lease contract). The other party of an executory contract is entitled to request the administrator to confirm whether it will terminate or assume the contract (“Peremptory Notice”). If the administrator does not respond to the Peremptory Notice within 30 days, the administrator is deemed to have assumed the contract. 4) Vessel charter agreements ① Vessel charter agreements fall under executory contracts, and thus the administrator may elect to assume or terminate the contracts. ② The nature of the claims against unpaid hire can be categorized as either a rehabilitation claim or a public-interest claim depending on the point in time when the claim arose (public-interest claims have priority in repayment over rehabilitation claims). ③ There may be various legal issues, such as (1) whether the ship-owner may terminate the charter agreement after the commencement of the rehabilitation procedure based on the non-payment of hire which arose before the commencement of the rehabilitation proceedings1 and (2) the validity of bankruptcy clauses that allow termination of charter agreements upon commencement of rehabilitation procedures. 1The right to terminate can be exercised if such right was already exercisable before the commencement of the rehabilitation procedure. 5) Carriage contracts performed at the commencement of rehabilitation proceedings ① Whether a carriage contract can be categorized as an executory contract may depend on whether the freight charges pursuant to such carriage contract have been fully paid. Regardless of whether such agreement is an executory contract, however, it is highly unlikely that Hanjin Shipping’s administrator will terminate the carriage contracts for goods already in transit and stop transportation of such goods. ② Problems arising from sea transportation of cargo by the vessels of Hanjin Shipping are primarily caused by, (i) the seizure of vessels of Hanjin Shipping and (ii) inability to unload/load cargo for reasons including refusal to handle cargo at foreign ports. For cases caused by (i), they may be resolved under the procedure set forth in the recognition of Korean bankruptcy proceeding in Section (2) above, and for countries where such a legal procedure is not available; in general Hanjin Shipping must resolve the issue by making the necessary payments. For cases caused by (ii), it is likely that the claims of the pilotage and towages will be afforded substantial protection because their claims may be recognized as the rehabilitation secured claim (if such claims arose prior to the commencement of the rehabilitation proceeding; provided that rights such as the maritime lien is recognized under the governing law) or as public interest claims (claims arising after the commencement of the rehabilitation proceeding). Therefore, it is comparatively unlikely that the pilots or towers will refuse work. For claims arising from discharge (unloading) of cargo, those arising after the commencement of the rehabilitation proceeding may qualify as the public interest claims, but those arising prior to commencement of the rehabilitation proceeding may qualify as the rehabilitation claims. Therefore, companies engaged in cargo discharge are likely to refuse work and at the same time demand payment on the claims on the cargo discharge service arising prior to the commencement of the rehabilitation proceeding. Stay orders from the countries having jurisdiction will not be sufficient, and Hanjin Shipping would have to negotiate with the companies providing cargo discharge service. ③ For liner transportation, usually the exporter or importer requests shipping of cargo to the freight forwarder, and the freight forwarder issues bills of lading or enters into transportation agreement with Hanjin Shipping (carrier). Therefore, any damages incurred by the exporter or importer for reasons of interruptions in freight shipping are likely to be borne by the freight forwarder. Freight forwarder will need to claim that such damages constitute claims against Hanjin Shipping. Damages incurred as a result of delays in transportation may arise from such causes as (i) YOON & YANG LLC 19th Fl., ASEM Tower, 517 Yeongdong-daero, Gangnam-Gu, Seoul, Korea 06164 Tel: +82-2-6003-7000 Fax: +82-2-6003-7800 http://www.yoonyang.com www.hwawoo.com consequential damages arising from, for example, the inability to sell products for the reason of delayed delivery of cargo, (ii) damages to cargo itself for delayed delivery, such as rotting of fresh goods, and (iii) additional cost incurred for arranging alternative vessel for cargo transportation. We expect many difficult legal issues which may include whether such claims are be valid claims against Hanjin Shipping (issues include exemption or limits on carrier’s liability under the relevant statute or contract, etc.) and if such claims are valid claims, then whether the claims qualify as public interest claims or rehabilitation claims, and how the amount of the claims against damages may be assessed for the purpose of claim reporting. 5. Information and Documents Required for Filing Claim Reports The following information and documents are required for filing claim reports: ① Proof of claims: contracts, invoices, or other documents that establish or support the existence and amount of claims as well as the nature of the claims; ② Certificate of incorporation (notarization required); and ③ Power of attorney (notarization required).
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Insolvency Law - September 2016
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