Hanjin Shipping and Arresting Vessels in China

This is on the Hanjin Shipping situation. We see this matter as China relevant because so many who ship their products to and from China have been impacted by it and the fact that we have received so many emails from our readers and our clients confirms this.

My firm has a strong international maritime practice, and as our website says, “we have handled hundreds of vessel repossessions and arrests involving yachts, fishing boats, cargo ships, and cruise and casino ships, and have successfully resolved corporate maritime cases in the Bahamas, the US, Canada, China, Denmark, Hong Kong, Japan, Korea, Norway, Poland, Taiwan, Turkey, and Vietnam.” Needless to say, with the Hanjin Shipping matter happening, this has been a busy time for us.

Here is what we know so far and what we are advising our clients.

Hanjin Shipping has filed for bankruptcy in South Korea and indications are this will lead to liquidation of Hanjin assets, with creditors getting the proverbial “pennies on the dollar.” The Korean Court is requiring all creditors file their claims against Hanjin by October 4, 2016 (Korea time!) and a failure to get your claim in by that date will almost certainly mean you will get nothing at all from the Hanjin liquidation.

Recognizing the likelihood of its claims being severely reduced in the Korean bankruptcy, many large or just aggressive creditors are looking to avoid this situation by seeking to seize Hanjin assets, including Hanjin vessels, all around the world. There is word of Hanjin vessels having been arrested in China, in Singapore, and in the United States. We have so far been advising our clients (whose situations and goals may be very different from yours!) not to initiate any vessel arrests themselves, but rather to monitor the arrests and join in on them if — and most especially — when that makes sense. Just as is true of the Korean bankruptcy action, vessel arrest actions all around the world have their own deadlines and a failure to file a timely claim in those vessel arrest actions can lead to the vessel being sold without your getting anything at all from the sale proceeds.

However, our prior involvement in international bankruptcies involving vessels tells us that that it is only a matter of time before Hanjin secures bankruptcy protection in additional countries and then it will be able to use that protection to block vessel arrests and sales. It is a waste of money to arrest  a vessel (or even to join in a vessel arrest) if the bankruptcy court of the country in which the vessel is under arrest will soon order the arrested vessel to be released. The key is to have a good idea of those countries that will honor Hanjin’s bankruptcy filing by giving Hanjin bankruptcy protections in their country as well. This is just another example of where conflict of laws becomes so important. See China Conflict of Laws: The Book.

But some countries are notoriously unfriendly to foreign or just Korean bankruptcies and are not likely to provide Hanjin Shipping with any respite from asset seizures and vessel arrests via bankruptcy court protections. It remains to be seen exactly which countries will fill out this list, but if past performance is any gage of future performance (and we all know that it is), we can expect China to figure prominently at the top of this list. For this reason, we plan to track down and closely monitor the Hanjin vessel arrest situation within China. If — as expected — China does not provide any bankruptcy protection to Hanjin vessels arrested in China’s ports, the most likely outcome is that those vessels will be sold at auction and the proceeds from those sales will be divided (based on claim priority) among those who filed claims against the specific vessels in China’s courts. What will be interesting is whether the Korean court will bar those that engage in arrest actions outside Korea from collecting at all from Hanjin proceeds in the Korea court action.

Many years ago, the international maritime lawyers at my firm represented a massive Korean chaebol in an action against a large American vessel owning company that had declared bankruptcy. Our plan was to arrest the American vessels in Russia and/or Korea and/or China and/or Japan and not worry at all about collecting the small amounts that might be available to our client in the American bankruptcy action. But when our plan went up the flagpole at the Korean company, one of its U.S. subsidiaries successfully lobbied against it, fearing that it would irrevocably harm its reputation and standing in U.S. courts going forward and maybe even in the U.S. as a whole. Our explanations about how the U.S. courts (no matter how much they might think otherwise: See Who Needs International/Foreign Law? Not Us, We’re Americans) do not have worldwide jurisdiction failed to win the day and our client backed down from doing anything that might go against even the spirit of the U.S. bankruptcy court rulings. I mention this case only to show how complicated these international maritime bankruptcies can be and how one most think and act strategically at all times, and not just merely jump in at what looks to be a potential collection opportunity.

That is especially going to be true with respect to collecting from Hanjin, for the additional reason that many vessels that bear the Hanjin name are not owned by Hanjin at all; some are merely chartered by Hanjin and some are said to no longer have any connection with Hanjin at all. This means that anyone who arrests a “Hanjin” vessel not owned by Hanjin could conceivably be subjecting themselves to a damage claim for wrongful arrest. Those whose cargoes are delayed by such a wrongful arrest may even have their own damages claims to bring against the party that initiated the ill-fated arrested.

Then on top of those owed money by Hanjin, are those whose cargoes are tied up on Hanjin vessels. These situations are so situation-specific and so fluid, that it is nearly impossible to provide any sort of blanket advice to them beyond that they stay on top of both the situation involving Hanjin overall and the situation regarding their own cargoes and the specific vessels carrying their cargo.

If you have any breaking information regarding Hanjin or any of its vessels, I encourage you to share it via the comments below or on Linkedin here, where I have duplicated this article.

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.