The Misadventures of Hanjin Shipping: A View from the ...€¦ · enter the fleet. Virtually every company in the industry is at risk because of uncertainties about overall global

© 2016 Vedder Price

The Misadventures of Hanjin Shipping: A View from the [Bayonne] Bridge

John E. Bradley 18th Annual Greek Ship Finance Forum

October 11, 2016


Hanjin Shipping Snapshot • Seventh Largest Container Shipping Operator in the World • Ownership Stock-listed corporation 245,269,947 shares Largest shareholder: Korean Air Lines, Co. Ltd. (33.2%)

• Industry Sectors Container Shipping Dry Bulk Terminals

• Member CKYKE Alliance COSCO “K” Line Yang Ming Hanjin Evergreen

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Hanjin Shipping Snapshot

• Fleet Profile

Source: Hanjin 2015 Operating Results Presentation

38 61 99 624,879

24 32 56 5,449,650


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Hanjin Shipping Snapshot

• Global Service

Source: Hanjin 2015 Business Report

’72 liner servicers operated, calling more than 90 ports in 35 plus countries


Hanjin Shipping: The Road to Bankruptcy

• Depressed (and Depressing) Shipping Sectors Dry Bulk

“After a somewhat stable 2013-14, the dry bulk shipping industry began a deep downturn in 2015. Industry financial performance declined markedly from 2014, and compared with 2013, the drop in operating performance has been staggering. The unbalanced supply-and-demand equation means pricing won’t rebound meaningfully while too many vessels keep chasing too few shiploads. The beginning of 2016 was equally rough: despite a modest bounce in pricing at the end of the first quarter, the outlook for the remainder of the year remains extremely negative. Although vessel demolitions in 2016 are expected to hit a record high of 40 million deadweight tons (DWT), that won’t offset the 50 million new DWT expected to enter the fleet. Virtually every company in the industry is at risk because of uncertainties about overall global economic activity and trade, coupled with reduced demand for iron ore and coal from both China and India.”

Source: Alix Partners 2016 Dry Bulk Shipping Outlook

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Container Shipping “The containerized-ocean-freight industry suffered in 2015. Its continuing

financial woes accelerated because nearly all key financial indicators declined from 2014. At the heart of the industry’s problems, a persistent global supply-and-demand imbalance is to blame. All signs point to a continuation of that theme into 2016 and beyond. The most-recent forecasts expect global container fleet capacity to grow by 4.6% in 2016, and another 4.7% in 2017, though spot prices for major routes have dropped 21 to 44% from a year ago because of plunging demand, now about half the current growth forecast.”

Source: Alix Partners Container Shipping Outlook 2016


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• Deteriorating Financials Year-Over-Year Losses

$415 million for 6 months ending 30 June 2016 $19.7 million for 12 months ending 31 December 2015 $415 million for 12 months ending 31 December 2014 $639 million for 12 months ending 31 December 2013 $629 million for 12 months ending 31 December 2012

Crushing Debt As of 30 June 2016, debts totaled $5.4 billion, with $2.8 billion maturing within one

year

Massive Cash Burn Cash on hand as of 31 December 2014: $346 million Cash on hand as of 31 December 2015: $165 million Cash on hand as of 30 June 2016: $156 million


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• Independent Auditor’s Report “With a general depression in the shipping industry, the Company’s current liabilities significantly exceeded its current assets. In overcoming these difficulties, the Company has implemented financial reorganization plans which include, but not limited to, refinancing of bonds, reduction of costs, disposal of assets and issuance of perpetual bonds. The Company’s financial position and financial performance depend on the recovery of the shipping industry and the result of the Company’s financial reorganization plan. These conditions indicate material uncertainties that the Company’s financial position and financial performance may change significantly.”

Ernst & Young Han Young, March 3, 2016 Source: Hanjin 2015 Business Report


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Hanjin Shipping: The Road to Bankruptcy • Negotiations with Lenders April 25, 2016: Hanjin files application for voluntary out-of-court

restructuring procedures with the Korea Development Bank (KDB) and other key lenders

Credit Financial Institution Committee (CFIC) formed by KDB and other lenders

May 4, 2016: CFIC votes to proceed with voluntary agreement procedures for Hanjin and postpone exercise of claims for three months

August 30, 2016: Voluntary agreement procedure suspended following notification by CFIC of its decision that it could not support Hanjin

“With this, the Debtor was led to financial ruin due to a severe lack of liquidity” Source: Seoul Central District Court

August 31, 2016: Hanjin commences rehabilitation procedures in Korea Chaos ensues

© 2016 Vedder Price 10

Hellenic Lines Bankruptcy - 1983



Cross-Border Shipping Insolvencies • Hellenic Bankruptcy Protection of local creditors Custodia legis approach Limited extra-territorial effect of automatic stay

• Cross-Border Insolvencies Unique Issues Involving Cross-Border Shipping Insolvencies Mobility of large capital assets Differing legal regimes Maritime liens Number of stakeholders

Competing approaches Universality approach

• gives weight to international duty and convenience (comity) Territoriality approach

• protects rights of local creditors

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Cross-Border Shipping Insolvencies

• Bankruptcy Reform Act of 1978: Section 304 Section 304 addressed cross-border insolvencies Remained in effect until 2005 Ancillary proceedings Filing of petition by foreign representative Uncontested petition: relief granted Contested petition: mini-trial required


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Section 304: Forms of Relief Available: Injunction against commencement or continuation of

actions against foreign debtor or its property in the U.S. Injunction against enforcement of judgment or creation

or enforcement of lien against foreign debtor Turnover of property in which foreign debtor has an

interest Other appropriate relief


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Cross-Border Shipping Insolvencies Section 304: Relief Dependent on Balancing of Factors Just treatment of all holders of claims Protection of U.S. claim holders against prejudice or inconvenience Prevention of fraudulent dispositions of property Distribution in substantial accordance with U.S. Bankruptcy Code Opportunity for a fresh start for debtor Comity

Section 304 Balancing Exercise Costly Time consuming Inefficient

Cross-Border Shipping Insolvencies Section 304 was not a very effective tool


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• United Nations Commission on International Trade Law (UNCITRAL)

• UNCITRAL Model Law on Cross-Border Insolvency Date of adoption: 30 May 1997 Purpose

“The Model Law is designed to assist States to equip their insolvency laws with a modern legal framework to more effectively address cross-border insolvency proceedings concerning debtors experiencing severe financial distress or insolvency. It focuses on authorizing and encouraging cooperation and coordination between jurisdictions, rather than attempting the unification of substantive insolvency law, and respects the differences among national procedural laws. For the purpose of the Model Law, a cross-border insolvency is one where the insolvent debtor has assets in more than one State or where some creditors of the debtor are not from the State where the insolvency proceeding is taking place.”

www.uncitral.org/uncitral/uncitral_texts/insolvency/1997Model.html

http://www.uncitral.org/uncitral/uncitral_texts/insolvency/1997Model.html


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Model Law: Key Provisions Gives foreign representatives access to courts of an

enacting State to seek judicial assistance Establishes simplified procedures for recognition of

qualifying foreign proceedings Specifies relief necessary for the orderly conduct of

cross-border insolvencies (including interim relief) Empowers courts to cooperate and to communicate

with foreign counterparts http://www.uncitral.org/uncitral/en/uncitral_texts/insolvency/1997Model.html

Designed to be integrated into local insolvency laws

http://www.uncitral.org/uncitral/en/uncitral_texts/insolvency/1997Model.html


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Model Law adopted in 41 States in 43 jurisdictions, including Australia (2005) Canada (2005) Greece (2010) Japan (2000) Mexico (2000) New Zealand (2006) Philippines (2010)

Poland (2003) Republic of Korea (2006) South Africa (2000) BVI (2003) Gibraltar (2014) Great Britain (2006) United States (2005)

http://www.uncitral.org/uncitral/en/uncitral_texts/insolvency/1997Model_status.html

http://www.uncitral.org/uncitral/en/uncitral_texts/insolvency/1997Model_status.html


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Gradual International Trend Towards Universality Council Regulation (E.C.) 1346/2000 of 29 May 2000 on insolvency

proceedings • Applies in cross-border cases among EU members except Denmark • Shortcomings

Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast)

Chapter 15 of the United States Bankruptcy Code, Pub L. 109-8, 119 Stat. 23, 134 (codified 11 U.S.C. §§ 1501-1532) • Based on Model Law • Enacted April 20, 2005 and took effect October 17, 2005 • Repealed Section 304 of the Bankruptcy Code • Purposes the same as the Model Law


Chapter 15 Shipping Cases

Debtor Court Docket No. Filing Date Judge Foreign Proceeding

Status

Hanjin Shipping Co. Ltd. New Jersey 16-27041 9-2-2016 John Sherwood

Korea Recognition pending

O.W. Bunker Germany GmbH

New York (SD) 15-13018 11-11-2015 Stuart M. Bernstein

Germany Recognized Granted as Foreign Main Proceeding (by stipulated order)

Daiichi Chuo Kaisha New York (SD) 15-12650 9-29-2015 Michael E. Wiles

Japan Recognition Granted as Foreign Main Proceeding

Rizzo Bottiglieri-De Carlini Armatori S.P.A.

Texas (SD) 15-32041 4-8-2015 David Jones

Italy Recognition Granted as Foreign Main Proceeding

Daebo International Shipping Co. Ltd.

New York (SD) 15-10616 3-16-2015 Michael E. Wiles

Korea Recognition Granted as Foreign Main Proceeding

B. Endeavour Shipping Company Limited

New York (SD) 15-10246 2-3-2015 Robert E. Gerber

England Recognition Granted as Foreign Main Proceeding

Daehan Shipbuilding Co. Ltd.

New York (SD) 14-12391 8-18-2014 Sean H. Lane



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Chapter 15 Shipping Cases Debtor Court Docket No. Filing Date Judge Foreign

Proceeding Status

Pioneer Freight Futures Company Limited

New York (SD) 13-12324 7-15-2013 James L. Garrity

BVI Recognition Granted as Foreign Main Proceeding

STX Pan Ocean Co. New York (SD) 13-12046 6-20-2013 Shelley C. Chapman


PT Berlian Laju Tank Tbk New York (SD) 13-10901 3-26-2013 Stuart M Bernstein

Indonesia Recognition Granted as Foreign Main Proceeding

The Sanko S.S. Co. Ltd. New York (SD) 12-12815 7-2-2012 James M. Peck

Japan Recognition Granted as Foreign Main Proceeding

Humpuss Sea Transport Pte Ltd

New York (SD) 12-11086 3-19-2012 Shelley C. Chapman

Singapore Recognition Granted as Foreign Main Proceeding

Chembulk New York Pte Ltd and Affiliates

New York (SD) 12-11007 – 12-11019

3-14-2012 Stuart M. Bernstein



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Chapter 15 Shipping Cases Debtor Court Docket

No. Filing Date Judge Foreign

Proceeding Status

PT. Arpeni Pratama Ocean Line Tbk, PT

New York (SD) 11-15691 12-12-2011 Allan L. Gropper

Indonesia Recognition Granted as Foreign Main Proceeding

Farenco Shipping Co. LLC



The Containership Company A/S

New York (SD) 11-12622 5-31-2011 Sean H. Lane

Denmark Recognition Granted as Foreign Main Proceeding

Korea Line Corp. New York (SD) 11-10789 2-25-2011 Robert E. Gerber


Transfeld ER Cape Ltd. New York (SD) 10-16270 10-16-2010 Martin Glenn


Daewoo Logistics Corporation

New York (SD) 09-15558 9-15-2009 Burton R. Lifland



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Chapter 15 Shipping Cases Debtor Court Docket No. Filing Date Judge Foreign

Proceeding Status

Samsun Logix Corporation

New York (SD) 09-11109 3-1-2009 Stuart M Bernstein


Armada (Singapore) Pte Ltd

New York (SD) 09-10105 1-7-2009 James M. Peck


Atlas Shipping A/S New York (SD) 09-10314 – 09-10315

1-23-2009 Martin Glenn


Britannia Bulk PLC New York (SD) 08-14543 11-17-2008 Robert E. Gerber

England Recognition Granted as Foreign Main Proceeding

Britannia Bulkers A/S



North American Steamships Ltd.

New York (SD) 06-13077 12-22-2006 Robert D. Drain

British Columbia

Recognition Granted as Foreign Main Proceeding


Hanjin Bankruptcy • Hanjin Chapter 15 Case Commencement Date 2 September 2016

Venue, Assigned Judge and Foreign Representative U.S. Bankruptcy Court for the District of New Jersey Hon. John Sherwood Mr. Tai-Soo Suk, President, Hanjin Shipping

Provisional Relief Obtained Interim Provisional Order (6 September 2016) Order Granting Provisional Relief (9 September 2016)

• Applies to all property of Hanjin within the territorial jurisdiction of the United States including owned, operated or chartered (leased) vessels or property thereon (including bunkers) and any other transportation equipment (including containers and chassis) (“Hanjin U.S. Assets”)

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Hanjin Bankruptcy • Order Prohibits

• Execution against Hanjin U.S. Assets • Commencement or continuation of actions or proceedings against Hanjin

or Hanjin Assets in the United States • Transfer or disposition of Hanjin U.S. Assets without consent • Termination or modification of existing contracts and unexpired leases

due to Hanjin insolvency • Arrest an attachment of any vessel or other transportation equipment

owned or operated by or chartered to Hanjin.

• Implementation of Chapter 15 in the United States Generally served purposes of Model Law

Protected Hanjin U.S. Assets Facilitated Cooperation with Korean Rehab Court


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Hanjin Bankruptcy • Poor Execution of Hanjin Bankruptcy Timing Issues

You don’t wait until the house burns down before calling the fire brigade Liquidity Issues

Cash Reliable source of post-petition financing

• “You need a lot of money to go bankrupt”

Critical Vendor Issues Debtors with worldwide operations must take care of critical vendors

Asset Protection Issues Detention or arrest of vessels for prolonged periods of time in numerous

jurisdictions, including China, Canada, Singapore, Australia and Panama Customer Relationship Issues

$13 billion of cargo stranded on Hanjin ships Failure to perform bill of lading obligations Late delivery and non-delivery of just-in-time goods Supply chains severely interrupted


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Hanjin Bankruptcy

Transparency Issues Information Management

Alliance Partner Issues Venue Issues

Korea or United States for plenary case Planning Issues

• Terminals and depots • Container and chassis availability and returns • HANJIN MIAMI


Hanjin Miami


Bayonne Bridge − Port of New York


Map of the Port of New York

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John E. Bradley Shareholder Vedder Price P.C. 1633 Broadway New York, NY 10019 212-407-6940 [email protected]

Documents

The Misadventures of Hanjin Shipping: A View from the ...€¦ · enter the fleet. Virtually every company in the industry is at risk because of uncertainties about overall global