Hanjin Shipping Bankruptcy - What Cargo Owners Need to Know
Date: September 15, 2016
News of the bankruptcy of one of the world’s largest ocean carriers, Hanjin Shipping Co., Ltd. (Hanjin), continues to have a ripple effect globally, creating legal entanglements and disrupting company supply chains. Some ports, terminals, stevedores, truckers and rail carriers have refused to service Hanjin vessels and containers for fear of not getting paid. As a result, in the United States, two federal agencies have issued guidance documents, and an ancillary bankruptcy proceeding has been filed in the Bankruptcy Court for the District of New Jersey, following commencement of the “foreign main proceeding” in South Korea. Parties forced to navigate through the Hanjin bankruptcy need to know their contractual rights and legal options to best protect their interests.
A time line of events involving the Hanjin bankruptcy is below; it addresses the guidance issued by the U.S. Federal Maritime Commission (FMC) and U.S. Customs and Border Protection (CBP) in addition to the Chapter 15 U.S. bankruptcy proceeding. Also, below are some practical considerations for cargo owners impacted by the Hanjin bankruptcy.
August 31: Hanjin filed for receivership in the Seoul Central District Court in Seoul, Republic of Korea. A provisional stay order was entered that day, and an order commencing the rehabilitation proceedings in Korea was entered the following day.
September 1: FMC issued initial guidance for U.S.-based shippers and cargo owners in a press release, Statement Regarding Status of Hanjin Shipping. While stating that it had no jurisdiction to resolve bankruptcy claims, the FMC indicated that it would watch for, and quickly respond to, any improper behavior by other carriers and regulated parties (including marine terminal operators, non-vessel operating common carriers and freight forwarders) that may violate the Shipping Act. Further, the FMC, concerned about the impact of Hanjin’s status on the shipping industry generally, advised that it will closely monitor any developments that might impact shipping markets.
September 2: CBP issued Guidance on Vessel Diversions for Hanjin Shipping Lines Cargo. In its guidance, CBP has provided various processing scenarios to assist with trade and identified procedures to prevent disruptions. The procedures depend on whether a Hanjin vessel is diverted to a U.S. or non-U.S. port as well as whether the freight is discharged. CBP has indicated that only in limited circumstances should a Hanjin vessel be diverted to a foreign port of entry where the cargo is not discharged. The cargo should instead be transferred to another conveyance for arrival and discharge at the original intended U.S. port of entry. If a vessel is diverted to a foreign port and discharged, and the cargo is subject to Food and Drug Administration requirements, filers must request deletion and submit a new Bio-Terrorism Act prior notice along with the new entry if the cargo then proceeds to enter the United States. Depending on each scenario, it will be important to verify whether the manifest, bills of lading, Importer Security Filing, entries or entry summaries need to be updated or deleted and re-entered as appropriate. If cargo has already been discharged and is in the United States and moving under Hanjin’s bond, brokers will be allowed to continue to move or export the goods provided it is done in-bond.
September 6: Temporary Order entered in the U.S. Bankruptcy Court for the District of New Jersey preventing Hanjin vessels from being arrested and vendor counterparties from terminating or exercising remedies under their respective contracts solely as a consequence of the Korean rehabilitation proceeding or the U.S. Chapter 15 case.
September 9: Bankruptcy Court entered a Final Order that extended its Temporary Order preventing the seizure of Hanjin vessels in applicable U.S. ports and protecting against termination of contracts based solely upon the bankruptcy filings. Exhibit A to the Final Order is a “protocol,” or process by which beneficial cargo owners can (1) negotiate Release Agreements with terminals, carriers or other third parties to obtain their cargo transported on Hanjin vessels by paying for the unloading and other costs, and (2) secure Hanjin’s approval for the release. A beneficial cargo owner may request relief from the Bankruptcy Court on two calendar days’ written notice if Hanjin fails to reasonably cooperate with respect to a Release Agreement. In addition, a party in interest that is not in agreement with this “protocol” may seek relief from the Bankruptcy Court upon notice to Hanjin’s foreign representative in the United States.
September 12: In the U.S. Bankruptcy Court proceedings, a group of maritime lienholders filed Notice for Reconsideration of the court’s Final Order entered on September 9.
September 15: U.S. Bankruptcy Court will hold a hearing on the Notice for Reconsideration. The focus of the hearing will be the contention of certain maritime lienholders that the Bankruptcy Court mistakenly held that they could assert maritime liens in rem against Hanjin-chartered vessels in Korea and that they would otherwise be secured creditors in Korea. At this hearing, or shortly thereafter, the Bankruptcy Court is also expected to schedule a recognition hearing (upon at least 21 days’ notice), at which time the issues already heard and determined in connection with the September 9 order will be considered again, together with any further relief Hanjin may seek or any modifications or protections that Hanjin’s U.S. creditors may request.
The Hanjin bankruptcy has caused major supply chain disruptions for many shippers and receivers of cargo. Cargo owners should undertake to protect their interests by:
- identifying all shipments that have been impacted by Hanjin vessels that are delayed, stranded or seized.
- understanding the processes that are available to access their impacted cargo, including the negotiation of new agreements with terminals, carriers and/or other service providers (at potentially higher expense) in accordance with the procedures outlined by the U.S. and potentially other bankruptcy courts.
- understanding the claims processes that exist in the South Korean bankruptcy proceeding to potentially recover damages incurred as a result of the Hanjin bankruptcy filing.
- monitoring Hanjin’s financing efforts and its plan of rehabilitation to be filed in Korea.
- reviewing contractual agreements with Hanjin or other ocean carriers who have vessel-sharing arrangements with Hanjin to understand their contractual rights and risks.
- monitoring and possibly attending the recognition hearing, expected to be conducted in early October, to make certain that the interests of beneficial cargo owners are “sufficiently protected” as required by Chapter 15 of the U.S. Bankruptcy Code.
Our Business Restructuring, Creditors’ Rights & Bankruptcy, International Trade & Customs and Transportation lawyers are able to advise and assist companies impacted by this challenging situation.
FOR MORE INFORMATION
For more information, please contact:
Karyn A. Booth
International Trade & Customs
William H. Schrag
Business Restructuring, Creditors’ Rights & Bankruptcy
David M. Schwartz
International Trade & Customs
Madeline Jane Hope Sisk
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