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Michael Murray’s on-going commentary on issues in corporate and personal insolvency law and related policy and law reform, in Australia and internationally. Given the scope of insolvency, this extends to business, consumer and professional conduct, and ethics, governance and regulation, criminal, tax, environmental and administrative law, and the courts and government.

 

Hanjin Shipping – an Australian perspective

The appointment of a receiver to the large South Korean Hanjin Shipping Line has had an impact in Australia, with parties before the Federal Court last week, 16 September, in relation to the arrest of the ‘Hanjin California,’ presently moored in Sydney Harbour.  For legal reasons, one arrest claim was not successful.   

Hanjin’s receiver was appointed under the Debtor Rehabilitation and Bankruptcy Act of Korea and is in the process of implementing a rehabilitation plan approved by the Korean court.  He is said to have obtained cross-border insolvency protection under Chapter 15 of the US Bankruptcy Code, and under similar laws in the UK, which should allow him as receiver to exercise more control over the shipping operations.  Beyond that, reports as to his progress are fast moving and mixed.  

The possibility of such protection being sought under our Cross-Border Insolvency Act (that is, under the UNCITRAL Model Law) has been raised. In the overall scheme of Hanjin’s receivership, that will be small time.

Apart from wanting to know more from the parties – information which was not at that time available – the Judge was concerned to know the welfare of the crew on board the Hanjin California and he asked for a report to be filed.

Australian courts have previously recognized Korean proceedings, for example Kim v SW Shipping Co Ltd [2016] FCA 428.

It is at that point of the powers being given to the foreign receiver that legal tension can arise between his claims and those seeking to arrest and sell Hanjin’s ships to recoup their losses. Typically, when a liquidator is appointed to a failing company, all creditors’ claims are stayed. But secured claimants may still recover against a secured asset.  This is where maritime law comes in, giving an unpaid fuel supplier a direct claim against the ship.

In Australia, the law applying to validate that type of maritime ‘lien’ is uncertain, since the 2015 Federal Court decision – the Sam Hawk v Reiter Petroleum – declined to follow long established law under the Halcyon Isle decision of the Privy Council. The appeal decision has now been given, overturning the trial judge decision.   

As fate would have it, Justice Rares is one of the judges on that appeal court.  He in fact has mentioned in court the relevance of the Sam Hawk decision to the Hanjin claims. 

Ships are unusual assets for a liquidator to deal with. A shipping enterprise can be extensive geographically and difficult logistically with those ships at various stages of cargo handling. Commercial shipping contracts can be complex with every part of a ship’s operations the subject of leasing or chartering or security, with fuel suppliers and crew holding particular security under maritime liens. Port authorities often have statutory security under law.  And all this occurs across a range of jurisdictions. 

While ships will always be needed, shipping is suffering increased competition from air freight services, transporting many goods – food for one, and technology consumables – unsuitable for longer shipping delivery times. Demand for the latest iPhone 7s, or fresh fruit, would call for overnight air freight, rather than weeks. Pirate incursions are another current risk.

Still, the huge capacity of ships will never be offered by flight and this remains a major advantage. Ship design and technology is also improving – computer guided “crewless” ships are on the horizon. No crew, no maritime liens for unpaid wages.

But shipping remains a business subject to the vagaries of international trade and economic conditions. The problems of Hanjin are no doubt being faced elsewhere in what may presently be a ‘restructuring’ shake-up of the world’s shipping industry.

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