The moveable feast that is the demise of Hanjin Shipping Co. Ltd. continues to resonate through the shipping, container and insurance markets. Our last Waltons & Morse LLP bulletin – prior to our merger with Kennedys Law LLP to create Kennedys Marine on 1 November 2016 – referred to the revised schedule for the Korean rehabilitation proceedings, which arose following the sudden collapse of Hanjin Shipping.
As readers will know from our previous updates, from their own involvement and from the general publicity on the problem, on 31 August 2016, Hanjin Shipping Co. Ltd. (‘Hanjin’), the seventh largest shipping company in the world, applied to the Korean Court for court receivership. With what was estimated to be over US$14 billion worth of cargo on board Hanjin, multiple vessels trading around the world (particularly trading the Asia-Pacific route), and a significant number of creditors closing in on Hanjin, there followed panic and disruption to trade around the world.
As the dust begins to settle, it seems however that problems are being slowly worked through and whilst the cost to the industry will undoubtedly be significant, things might not be as bad as many feared.
Recognising the Korean proceedings
Hanjin’s application was accepted by the Seoul Central District Court and there followed recognition orders around the world in which certain jurisdictions recognised the Korean rehabilitation proceedings thereby giving Hanjin assets (in particular their vessels) the same protection as they would be afforded in Korea. This allowed for Hanjin vessels to enter into ports without fear of arrest so that discharge of cargo in those ports could take place. However obtaining those recognition orders took time and the delays that Hanjin vessels faced getting into ports was well documented in the press. There have however now been recognition orders in, amongst others, Australia, Canada, Germany, Japan, Singapore, UK and US.
Even with the recognition orders, discharge of cargo has been far from simple. One problem has been the fact that terminals and ports have been reluctant to allow Hanjin vessels to berth. Whilst the vessels might have been safe from arrest in those jurisdictions, that did not impose any obligation on ports to allow Hanjin vessels to berth and discharge – if there was no-one to pay for port charges once a vessel was allowed to berth and discharge, why should a port allow it in? This problem was largely overcome by an injection of cash from the Korean government and Hanjin’s shareholders to, specifically, assist with discharging cargo.
Another problem was that ports and terminals began to charge cargo owners and freight forwarders to collect cargo containers. For example, ECT in Rotterdam began charging US$1,000 per dry container and US$1,500 per special unit for anyone collecting their cargo. This was however challenged in the courts and the Rotterdam court said that the maximum that they could charge was US$25 for administration charges as well as the actual handling charge. As a result of the Rotterdam court ruling, the ECT subsequently revised their charges. As a further result of the Dutch ruling, Hong Kong shippers used it to challenge Hong Kong port terminal charges. Similar instances of port charges have been seen in Germany, Jebel Ali and the UK.
The recognition of the Korean rehabilitation proceedings has not been simple in all jurisdictions. The US has seen a stand-off between the US bankruptcy courts, seeking to protect the principles of recognising foreign bankruptcy judgments, and the US maritime courts, which allows for arrests and exercising liens in cases such as this where Hanjin have liabilities to multiple parties (such as vessel owners and bunker suppliers).
Where jurisdictions have not recognised the Korean rehabilitation proceedings, Hanjin vessels have been unable to enter those jurisdictions for fear of arrest (although ironically one of the successful arrests, of the HANJIN XIANAN, took place in Korea because in that case, the vessel was owned by a Panamanian special purpose vehicle). It is this which has caused the significant problems for the cargo industry – because Hanjin vessels have been unable to go to several ports around the world, Hanjin’s only option was to discharge cargo destined for those ports at some other port. The cargo has then been left there with Hanjin advising that they would not be able to complete the intended full voyage and that cargo would have to be collected from the port where it was discharged. This has resulted in forwarding charges which fall on the shoulders of the cargo owners or freight forwarders and ultimately in most cases, on cargo insurers. It is our view that such costs would be covered by the ICC(A) 2009 forwarding charges clause in these circumstances.
The Korean rehabilitation proceedings timetable
As to the Korean rehabilitation proceedings, the revised timetable was set out in our bulletin of 26 September 2016 and the deadline for submitting claims has now passed. However we understand from Korean legal advice that there is the potential for “innocent” claimants to submit claims before the second creditors’ meeting (which has not yet been scheduled). There has very recently been a further revision to the timetable which we understand is as follows:
- 26 October to 5 December 2016 (previously 26 October to 15 November 2016) Review of creditors’ claims report by the receiver.
- 14:00 on 13 January 2017 (previously 14:00 on 9 December 2016) First meeting of interested parties.
- 3 February 2017 (previously 23 December 2016) Deadline for submission of draft rehabilitation plan.
Whether the claims filed have been accepted or rejected by the receiver is anticipated to be known by 5 December 2016. The final and absolute deadline for any supplementary filing will be 3 February 2017, when the second meeting of the interested parties is anticipated to be held.
Claims submitted to date in Korea
With the passing of the initial deadline on 25 October, it has provided us with an insight into the creditors and types of claims. It appears that there were almost 3,000 creditors with an aggregate amount claimed of just over US$800 million. The creditor types were as follows:
- Container shipowners – 29%
- Stevedores – 23%
- Container lessors – 8%
- Bunker suppliers – 8%
- Bulk carrier/tanker related – 7%
- Rail operators – 5%
- Shipping line/feeder – 5%
- Hanjin group related – 2%
- Other/unidentified – 13%
The top three creditors by type were ship owners who were owed a combined US$230 million; terminal operators and stevedores owed US$182 million; and container leasing companies owed US$67 million.
In the meantime however, Hanjin have been working to get cargo off their vessels and 94 out of 97 ships have now unloaded their cargo. This equates to only 18,000 TEUs of 396,000 TEUs now remaining on board Hanjin vessels. 52 of the Hanjin vessels unloaded their cargo overseas and 42 unloaded in Korea. In the meantime, Hanjin have returned most of the chartered vessels to their owners and plan to sell all of its vessels by the end of this month.
Kennedys Marine will continue to closely monitor the Hanjin situation as it develops and we continue to advise insurers in relation to coverage under policies and the rehabilitation proceedings in Korea.