One of the world’s largest container shipping companies, Hanjin Shipping Co., has filed for bankruptcy. Hanjin is a South Korean company and filed for bankruptcy protection under Chapter 15 of the Bankruptcy Code.
Chapter 15 Bankruptcy and Model Law
Chapter 15 is a newer chapter of the Bankruptcy Code. It was added by the Bankruptcy Abuse Prevention and Protection Act of 2005. Chapter 15 is where the United States implemented the Model Law on Cross-Border Insolvency adopted by the United Nations Commission on International Trade Law in 1997. The purpose of Chapter 15 and of the Model Law is to provide an effective way to deal with insolvency cases that involve debtors, creditors, assets and interested parties in more than one country. The statute specifies five objectives of Chapter 15:
- to promote cooperation between the United States courts and parties of interest and the courts and other competent authorities of foreign countries involved in cross-border insolvency cases;
- to establish greater legal certainty for trade and investment;
- to provide for the fair and efficient administration of cross-border insolvencies that protects the interests of all creditors and other interested entities, including the debtor;
- to afford protection and maximization of the value of the debtor’s assets; and
- to facilitate the rescue of financially troubled businesses, thereby protecting investment and preserving employment. 11 U.S.C. § 1501.
Generally, a Chapter 15 case is brought in the United States along with a proceeding in the debtor’s home country. A representative of a company filing under Chapter 15 files a petition for recognition of a foreign proceeding. After notice and a hearing the court is authorized to issue an order recognizing the foreign proceeding. After the foreign proceeding is recognized by a U.S. Bankruptcy Court, the automatic stay and other select provisions of the Bankruptcy Code will become effective. In the case of Hanjin, it filed for receivership in South Korea last week, and several days later filed for protection in a New Jersey U.S. Bankruptcy Court. An initial hearing in the Hanjin case will take place this week.
Hanjin’s filings have caused a major headache in the shipping world. Ships all around the world have been refused permission to offload or receive containers because there is no guarantee that the workers and ports will be paid. As of September 2, 27 ships had been refused entries at ports or terminals. All in all, this could cause major delays in getting cargo to or from Asia, much to the chagrin of merchants wanting to stock shelves before the holiday season approaches.
If you have financial troubles of your own, do not hesitate to contact the Bond and Botes office closest to you and set up a free consultation to discuss your personal situation.