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					SHIPPING INSOLVENCIES – A HOME PORT
             IN THE USA?




                          PRESENTED TO
            THE 3rd ASIAN MARITIME LAW CONFERENCE
                              by
                     Jeremy J.O. Harwood
                                            May 6, 2010

6852368.1
                           WHY?

•         Significant Worldwide Debtor
          Protections to be Obtained Under the
          U.S. Bankruptcy Code
     A.         Automatic Stay
     B.         IPSO FACTO/Arbitration Clauses
     C.         Avoidance Actions
     D.         Bankruptcy Sales

    6852198.1                                    2
                INTRODUCTION

                      The Law
•   U.S. Bankruptcy Law is Codified – Title 11
•   Case Law Supplements it
                   The Chapters
•   Chapter 11 – Reorganization
•   Chapter 7 – Liquidation
•   Chapter 15 – “Ancillary and Other Cross-Border
    Cases”
    6852198.1                                        3
    WHO HAS USED IT RECENTLY?

                Chapter 15 (2010)

•   Samsun Logix Corp. - Korea
•   Daewoo Logistics Corp. - Korea
•   Armada (Singapore) Pte. Ltd.
•   Atlas Shipping A/S - Denmark
•   Britannia Bulkers Plc. - UK


    6852198.1                        4
                         I.
             JURISDICTIONAL
            STARTING POINT IN
          CHAPTER 11 AND 7 CASES:
          WHO MAY BE A DEBTOR?
• Code: 11 U.S.C. § 109 “Who May Be A Debtor”.
   – U.S. residence or domicile
   – U.S. place of business
   – “property in the United States”


  6852198.1                                      5
         THE CURIOUS CASE OF
       PETRORIG 1 PTE LTD ET AL
• Petrorig – Singapore entity with two
  affiliates filed in SDNY on May 17, 2009
• Only asset: oil rig in Singapore – under
  construction
• Obtained a temporary restraining
  order/preliminary injunction to prevent a
  Singapore shipyard exercising its rights to
  sell the oil rig

 6852198.1                                      6
            Basis of Jurisdiction:
       “Property In The United States”

• Unearned retainer deposited into account
  of New York law firm in a New York City
  bank account two weeks before that filing
• Disputed contractual right to a “riser” in
  Louisiana
• “Manufactured eligibility” to be a debtor?


 6852198.1                                     7
       OTHER “PROPERTY” CASES
             GLOBAL OCEAN CARRIERS

• business documents, various bank
  accounts (regardless of how much was
  actually in them) and unearned portion of
  legal retainers held in escrow sufficient
  “property” to be a debtor
  [251 B.R. 31 (Bankr. D. De. 2000)]


 6852198.1                                    8
       OTHER “PROPERTY” CASES
                     (Continued)

  CENARGO INTERNATIONAL PLC
  [294 B.R. 571 (S.D.N.Y. 2003)]
• Accounts opened in “Autumn, 2002”
   – Filing in February, 2003 – “provide further support
     for a filing”
• Application of automatic stay to Deutsche Bank,
  “even if foreign courts … chose not to enforce
  it” further justification.

 6852198.1                                                 9
   OTHER “PROPERTY” CASES
                     (Continued)
But see: Yukos Oil Co.
[321 B.R. 396 (Bankr. S.D. Tex. 2005)]
• Dismissal of Chapter 11 based on “totality of
   the circumstances”:
     – Funds which created jurisdiction transferred before
       filing of petition
     – Primary purpose was to create jurisdiction
     – Primary intent to substitute U.S. law in place of
       Russian law; E.U. law
     – likely lack of personal jurisdiction over pertinent
       parties

 6852198.1                                                   10
                      II.
 THE UPSIDE OF U.S. BANKRUPTCY
      A. THE AUTOMATIC STAY
(1) The Bankruptcy Court’s Jurisdiction
• 11 U.S.C.. §1334(e)(1): provides
    exclusive jurisdiction of:
     –       “ … all property, wherever located of the
             debtor as of the commencement of such
             case, and of property of the estate, …”



 6852198.1                                               11
•        Broad Definition of “Property Of The
         Estate”
     –      “All Legal or Equitable Interests Of The
            Debtor in property” “wherever located and
            by whatever held”




    6852198.1                                           12
(2) The Automatic Stay
• Protection of the Debtor’s “Estate” through the
    “Automatic Stay” (§ 362).
• Nature of a World-Wide Injunction Order –
    prohibits the “commencement or continuation
    … of a judicial, administrative, or other action
    or proceeding against the debtor that was or
    could have been commenced” before the filing.
• Includes arbitrations.

  6852198.1                                            13
(3) WORLDWIDE APPLICATION

    UNITED STATES LINES, INC. GAC
    MARINE FUELS LTD.
    [68 B.R. 690 (Bankr. S.D.N.Y. 1986)]
     Bunker Supplier’s Arrest of U.S.
      Lines’ vessels in Singapore and Hong
      Kong
     Monetary Sanctions – based on assertion
      of long-arm jurisdiction, until release.
 6852198.1                                       14
                               B.

(1) IPSO FACTO CLAUSES
• 11 U.S.C.. § 541(c )(1)(B):
   – An interest of the debtor in property becomes
     property of the estate … notwithstanding any
     provision in any agreement … or applicable
     nonbankruptcy law.
                          ***
         (B)   That is conditioned on the insolvency or
               financial condition of the debtor, on the
               commencement of the case … and that effects
               or gives an option to effect a … termination of
               the debtor’s interest in property


  6852198.1                                                      15
              RECENT APPLICATION

A. In Re Probulk Inc., et al
   [407 B.R. 56 (Bankr. S.D.N.Y. 2009)]
• Trustee obtained injunction against two P&I clubs
    asserting “Cesser Clause” right to terminate cover.
• Policies property of the Estate notwithstanding Club’s
    attempt to deem them terminated as a consequence of
    the board resolutions authorizing a bankruptcy filing
    and prospective appointment of a trustee or custodian.
   [i.e. Pre-filing]



  6852198.1                                                  16
                RECENT APPLICATION
                        (Continued)
•     Application of “UK law” not “determinative”
•     Court’s jurisdiction extends to property “wherever
      located” and to “actions taken by foreign entities with
      respect to such property.”
•     World-wide insurance rights became property of the
      estate and subject to the automatic stay.
•     Termination prohibited – unless relief obtained from
      stay.
•     Trustee had “clear probability of success” in seeking
      preliminary injunction against application of “cesser
      clause”.
    6852198.1                                                   17
                      B.

(2) ARBITRATION CLAUSES
• Unclear if enforceable against a debtor
• U.S. lines v. American [Club] et al.
    (197 F.3d 631 (2d Cir. 1999)]
  – Foreign P&I Clubs arbitration clauses did
    not mandate arbitration of Trustee’s
    declaratory action over coverage terms – a
    unique case?
 6852198.1                                       18
                         B.

(3) ANTI-ASSIGNMENT CLAUSES
A. 11 U.S.C. § 365: Assumption and
     Rejection of Contracts
    “The trustee may not assume or assign any
     executory contract … whether or not such
     contract or lease prohibits or restricts
     assignment of rights or delegation of duties,
     if - _____
    (c)(1)(A) applicable law excuses a party, other
     than the debtor, to such contract or lease from
     accepting performance …
  6852198.1                                            19
   ANTI-ASSIGNMENT CLAUSES
                    (Continued)
… whether or not such contract or lease prohibits or
   restricts assignment of rights or delegation of duties;
   and (B) such party does not consent to such
   assumption or assignment …
•  The Key: Prohibition applies only if the applicable law
   makes the contract unassignable independent of any
   restrictive language in the contract itself
•  Contracts such as loan commitments, letters of credit
   “debt financing or financial accommodations, to or for
   the benefit of the debtor or to issue a security of the
   debtor” are not assignable (11 U.S.C. § 365(c)(2)).

  6852198.1                                                  20
                       C.
                AVOIDANCE ACTIONS

•      Preferential Transfers (§ 547)
•      Fraudulent Transfers (§ 548):
     –      within 2 years before the filing
     –      intent to hinder, delay or defraud or
     –      received less than reasonably equivalent
            value in exchange and was insolvent at time
            or became insolvent as a result

    6852198.1                                             21
                    D.
               § 363 SALES

• Sale of property “other than in the
  ordinary course of business” after notice
  and hearing
• Showing not violate applicable non-
  bankruptcy law.



 6852198.1                                    22
            § 363 SALES (Cont’d)
     THE “CURIOUSER” CASE OF
   MILLENIUM SEACARRIERS, INC.
• Bankruptcy auction of Millenium fleet –
  challenged based on lack of in rem
  jurisdiction by certain lien creditors.
• Lienors asserted that the court could not
  extinguish their liens without having, at
  some stage, obtained in rem jurisdiction.


 6852198.1                                    23
   THE “CURIOUSER” CASE OF
  MILLENIUM SEACARRIERS, INC.
                  (Continued)
• Circuit Judge Sotomayor (as she then
  was):
  – We hold that lienors assented to the
    bankruptcy court’s equitable adjudication of
    their lien claims under principles of admiralty
    law … Because admiralty law does not claim
    exclusive jurisdiction on these facts, the
    bankruptcy court did not exercise jurisdiction
    reserved to the Article III courts.

 6852198.1                                            24
                  III.
               CHAPTER 7

• Liquidation – Direct or Conversion
• Appointment of a Trustee




 6852198.1                             25
                  IV.
            CHAPTER 15
          BACKGROUND (1)
• The New Chapter
  – Replaces Section 304 “Ancillary Petitions”




 6852198.1                                       26
                CHAPTER 15
              BACKGROUND (2)
Chapter 15: U.S.C..§§ 1501-1532
• § 1501: “Purpose and scope of application”
• (a) Comity and “to incorporate the Model Law
  On Cross-Border Insolvency
   – (a)(1) Cooperation between U.S. courts and “courts
     and other competent authorities of foreign countries
     involved in cross-border insolvency cases”
   – (a)(2) “greater legal certainty for trade and
     investment”

 6852198.1                                                  27
                     CHAPTER 15
                   BACKGROUND (3)
• § 1501(b): Application:
   – 4 grounds: mainly:
   – Where requested “by a foreign Court or foreign representative in
     connection with a foreign proceeding”
• § 1501(c): Inapplicable to:
   – Proceedings concerning “an entity, other than a foreign
     insurance company ineligible to be a debtor
     (§ 109(b)):
         • Railroad
         • Domestic insurance company, bank
         • Foreign bank, etc., with branches or agencies in the U.S.
   – And: individual U.S. citizens or resident
     aliens/stockbroker/commodities broker


  6852198.1                                                             28
             THE MECHANICS OF
                THE FILING (1)
• Petition Under 11 U.S.C.. §§1504 and
  1515 Recognition of “foreign main
  proceeding”
  – MEANING
  – A “case pending in the country where the
    debtor has the center of its main interests.”
    11 U.S.C.. § 1502(4)


 6852198.1                                          29
THE MECHANICS OF THE FILING (2)

•         Petition for Recognition:
[I.]      Accompanied by:
          1) Certified copy of the decision commencing the
              foreign proceeding and appointing the foreign
              representative in English
          2) Certificate from the foreign court in English, or
          3) Any other acceptable evidence if (1) and (2)
              unavailable.
[II.]     Statement of all foreign proceedings


   6852198.1                                                     30
THE MECHANICS OF THE FILING (3)

• The Petition is often accompanied by an ex
  parte “Application for Provisional Relief” – i.e.,
  an injunction by way of an emergency hearing
  (“Order to Show Cause”) for “Relief that may
  be granted upon filing petition for recognition”
  (11 U.S.C.. § 1519)
• The Court may from the “time of filing a
  petition . . . until the Court rules on the petition”
  “where relief is urgently needed to protect the
  assets of the debtor or interests of the creditors”:
  6852198.1                                               31
              INTERIM RELIEF

1. Stays execution against the debtor’s assets;
2. Entrust administration of debtor’s U.S.-based
   assets to the foreign representative;
3. Suspend the right to transfer, encumber or
   dispose of any assets;
4. Prevent taking of evidence of debtor’s assets;
5. Additional relief [except as to Chapter 5].
• The goal: preserve the status quo until the
   hearing, on notice “to creditors generally”
   (§1514).
  6852198.1                                         32
  EFFECTS OF RECOGNITION OF A
   FOREIGN MAIN PROCEEDING
• The “automatic stay” (§362) applies to Debtor's U.S.
  based property
• Foreign representative may operate the debtor's business
• But:
   – "does not affect the right to commence an individual action or
     proceeding in a foreign country to preserve a claim against the
     debtor." [11 U.S.C.. § 1520(b)]
   – or prevent either the foreign representative "on an entity to file a
     petition commencing a case under this title" -- i.e., an
     involuntary Chapter 11 "IF THE DEBTOR HAS ASSETS IN
     THE UNITED STATES" [11 U.S.C.. § 1528]




  6852198.1                                                                 33
  RELIEF THAT MAY BE GRANTED
        UPON RECOGNITION
• In addition to interim relief already granted:
   – Stay of actions "concerning debtor's assets, rights,
     obligations or liabilities" to extent not covered by
     362:
   – Stay of execution
   – "Administration or realization" of Debtor's U.S. assets
     entrusted to foreign representative:
   – Extend interim relief granted
Note: Injunction standards in respect of stays
applicable [11 U.S.C.. § 1521(e)]
  6852198.1                                                    34
   AVOIDANCE POWERS IN CHAPTER 15

I. CHAPTER 15 EXEMPTS CHAPTER 5 AVOIDANCE POWERS
   SO THAT A FOREIGN TRUSTEE MUST SEEK A PROPER
   MECHANISM FOR AVOIDANCE
    A. Section 1521(a)(7) limitations – “additional relief . . . except . .
       .”.
    B. Fogerty v. Condor Guaranty, Inc., 2009 WL 32167 * 3 f.n. 6
       (S.D. Miss. Feb. 9, 2009)
    – The District Court affirmed the Bankruptcy Court’s dismissal of
       the “Joint Official Liquidators’” adversary proceeding,
       “interpret[ing] 11 U.S.C.. §§ 1521(a)(7) and 1523 to mean that a
       foreign representative cannot bring an avoidance action under
       foreign law without first filing a case under Chapter 7 or Chapter
       11 of the [B]ankruptcy [C]ode.”



  6852198.1                                                                   35
 AVOIDANCE POWERS IN CHAPTER 15
                    (Continued)

 The District Court particularly noted that “the Foreign
 Representatives contend they are seeking relief
 [avoidance of fraudulent transfers] under Nevis law, not
 under United States law.” Id. at * 6. The District Court
 held on this issue:




6852198.1                                                   36
 AVOIDANCE POWERS IN CHAPTER 15
                               (Continued)

     Therefore, the plain language of the statutes does not specifically address the use
     of avoidance powers under foreign law. Nevertheless, the choice of law that is
     to be applied to a lawsuit is determined by a court having jurisdiction over the
     case, and the parties are not permitted to choose whatever law they wish
     when filing a lawsuit. See generally Jay Lawrence Westbrook, Choice of
     Avoidance Law in Global Insolvencies, 17 Brook. J. Int’l L. 499 (1991)
     (discussing the various methods of determining choice of law utilized in multi-
     national bankruptcies prior to the enactment of Chapter 15). Additionally, it
     should be noted that Section 1521 is written in terms of the types of powers and
     relief that are available to a foreign representative, and Congress arguably only
     referenced the code sections in order to specify the types of powers that
     foreign representatives do not have. See Collier’s International Business
     Insolvency Guide: “[Section 1521(a)(7) authorizes any additional relief that may
     be available to a trustee except for the exercise of avoidance powers. Avoidance
     powers are only available in a full case under another chapter of [T]itle 11.”
     Collier’s International Business Insolvency Guide P9.11(a).
 Id. at *8 (emphasis added).




6852198.1                                                                                  37
  AVOIDANCE POWERS IN CHAPTER 15
                   (Continued)


• Legislative History
  – The legislative history of Sections 1521 and
    1523 suggests that those sections “are
    intended to exclude all of the avoidance
    powers specified under either United States or
    foreign law, unless a Chapter 7 or Chapter 11
    bankruptcy proceeding is instituted.


 6852198.1                                           38
• The Fifth Circuit Reverses:
  [(5th Cir. 2010)]
      Holds:
      As Chapter 15 was intended to facilitate cooperation
      between U.S. courts and foreign bankruptcy
      proceedings, we read section 1521(a)(7) in that light
      and hold that a court has authority to permit relief
      under foreign avoidance law under the section. We
      reverse the judgment of the district court dismissing
      for want of jurisdiction and remand for further
      proceedings consistent with this opinion.
 6852198.1                                                    39
               THE ATLAS DECISION (1)
              (404 B.R. 726 (Bankr. S.D.N.Y. 2009)

• In the ATLAS SHIPPING case the New York
  Bankruptcy Court has issued a precedential
  decision (April 27, 2009) vacating Rule B
  attachments obtained before Atlas filed both its
  Danish bankruptcy case and its Chapter 15
  petition.
• The key to the decision was (1) comity and (2)
  protection of the attaching creditors’ claims
  (including alleged priorities) in the Danish case
  based on assurances from the foreign
  representative.
  6852198.1                                           40
              THE ATLAS DECISION (1)

• The ATLAS court held that the foreign
  representative was not relying on Chapter 5
  avoidance powers so restrictions on their
  application were irrelevant.
• The Court held the Court’s power to either
  entrust the “administration or realization of all or
  part of the debtor’s assets” within the USA to the
  foreign representative (§ 1521(a)(5)) or “entrust
  the distribution” of such assets (§ 1521(b)) was
  sufficient authority to vacate the Rule B
  attachments.
  6852198.1                                              41
                  Questions?
                  Jeremy J.O. Harwood
                    Blank Rome LLP
                  The Chrysler Building
                  405 Lexington Avenue
               New York, NY 10174-0208
                 Phone: +1.212.885.5259
                   Fax: +1.917.332.3730
            Email:JHarwood@BlankRome.com

             www.BlankRomeMaritime.com




6852198.1                                  42

				
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