I. The Bankruptcy Court's commencement of rehabilitation proceedings and announcement of timetable
On September 1, 2016, the 6th Bankruptcy Division of the Seoul Central District Court (presiding judge Jung-Man Kim and judges Tae-Kyu Shim and Seung-Hwan Cha) (the "Bankruptcy Court") issued an order to commence the rehabilitation proceedings of Hanjin Shipping Co., Ltd. ("Hanjin"). The Bankruptcy Court appointed Mr. Tae-Soo Seok, one of Hanjin's two representative directors, as a receiver in charge of managing Hanjin's business and assets, requiring him to submit by September 19 a list of creditors (including claim amounts) of secured and/or unsecured rehabilitation claims. If any creditor believes that there is a mistake, omission or discrepancy in such creditors list, the relevant creditor is to report its secured and/or unsecured rehabilitation claims to the Bankruptcy Court by October 4. Also, the Bankruptcy Court decided to hold the "interested parties meeting"(where the cause of the rehabilitation proceedings, the results of the investigator's reviews and the results of examination over the reported claims will be reported) at PM 2:00 on November 11. The Bankruptcy Court also ordered the receiver to submit a draft rehabilitation plan by November 25.
II. Seizure of Hanjin's vessels and reactions by the Korean government and Hanjin
According to news reports, as of September 4, 79 out of a totalof128 vessels operated by Hanjin are seized, arrested or otherwise inoperable due to issues such as loading or unloading troubles. Accordingly, the losses to cargo owners are growing, and a number of cross-border lawsuits are expected to be lodged.
As the negative repercussions of Hanjin's rehabilitation proceedings continue to mount, the Korean government is formulating a task force to handle this matter and Hanjin has started filing for cross-border recognition of the Korean rehabilitation proceedings in order to prevent its vessels from being seized or arrested in other jurisdictions. For example, Hanjin appears to have filed for a recognition order under Chapter 15 of the United States Bankruptcy Court on September 2 and is expected to make similar filings in other jurisdictions such as Canada, Germany and Britain.
III. Cautionary notes for creditors
Claims based on facts that existed prior to the commencement of rehabilitation proceedings are mainly categorized as rehabilitation claims, and, in principle, any claim that is not specified in the creditors list or later reported to the bankruptcy court will be excluded from the rehabilitation plan, which will make such claim unenforceable against Hanjin. Therefore, creditors of Hanjin wishing to receive payment on their claims through the current rehabilitation proceedings need to check the creditors list and, if necessary, report their claims to the Bankruptcy Court.
Creditors with both claims and liabilities against Hanjin may be allowed to conduct a setoff in certain cases—such claims need to have arisen prior to the commencement of the rehabilitation proceedings and the setoff needs to be conducted prior to expiration of the claim report period. Since such setoffs are subject to certain restrictions, they require careful legal reviews.
Also, creditors wishing to take legal actions in other jurisdictions should check whether there is any relevant cross-border recognition or similar court order in place to avoid wasting time and money. Such cross-border recognition or similar order issued by a court of the relevant jurisdiction would prohibit the creditors from taking compulsory enforcement measures against Hanjin or its assets in that jurisdiction.
Finally, if creditors that have supply or other executory contracts with Hanjin wish to unilaterally terminate such contracts, they should carefully check in advance whether such termination would be permissible; otherwise, they may become liable to pay damages to Hanjin for unlawful termination.
Originally published in Insolvency Legal Update 2016.09
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