On September 1, 2016, a rehabilitation procedure was commenced in the Seoul Central District Court in respect of Hanjin Shipping Co., Ltd (Hanjin). This action followed many months of discussions between Hanjin and its creditors (both local and international) designed to reach a consensual restructuring, as a result of which various creditors had voluntarily agreed to postpone exercising claims. Such agreement was eventually suspended on August 30, 2016 following notice to Hanjin that such creditors were unable to continue their support.
The immediate consequences of the rehabilitation proceedings are fluid and fast moving and the facts and information in this briefing note are updated as at 14 September 2016.
- The Seoul Central District Court has approved the commencement of rehabilitation proceedings, the stated purpose of which is the effective rehabilitation of Hanjin and its business, by restructuring its debts owed to creditors in accordance with a rehabilitation plan to be agreed and approved.
- It has been reported that Hanjin has until December 23, 2016 to propose a rehabilitation plan to the court. Creditors will be required to approve this plan, and after such approval, the Court must confirm the plan. Should this not be successful it is likely that a liquidation would follow
- One of Hanjin's senior executives, Tae-Soo Suk, has been appointed by the Court as the receiver handling Hanjin's business and rehabilitation plan.
- There have been widespread disruptions to Hanjin's fleet and logistics operations, including actions for vessel arrests, denial of berthing and/ or unloading of cargo at certain ports and extended vessel voyages in international waters pending clarification of creditors intentions.
- Preliminary reports indicate that (i) up to 53 vessels in the Hanjin fleet have been seized or blocked from access to ports with cargo value estimates on vessels in transit in excess of US$14 billion, (ii) Hyundai Merchant Marine Co. Ltd. (HMM) may be prepared (possibly together with other smaller carriers) to provide vessels to relieve some of the logistical difficulties facing the Hanjin fleet, and (iii) the South Korean government is considering providing support to subcontractors adversely affected by the Hanjin proceedings.
- Although there were notable increases in container spot rates in the immediate aftermath of the announcement of the Hanjin rehabilitation procedure, it appears that such rates have now stabilized.
- To provide additional legal protections in respect of its operations and assets, Hanjin filed an application under Chapter 15 of the US Bankruptcy Code on September 2, 2016 (the US Chapter 15 Filing). The application was granted on a provisional basis following a preliminary hearing on September 6, 2016, and the provisional order was affirmed on September 9, 2016 subject to a protocol on cargo transfers and continuing challenges from creditors, including holders of maritime liens that have asserted that their interests are not sufficiently protected. Hanjin has also secured recognition of the Korean proceedings in the English courts, and additional applications are expected to extend recognition of the proceedings in other jurisdictions, including for a moratorium on creditor action, to cover assets otherwise at risk of detention and/ or arrest.
- Accessing new capital to keep the business afloat and minimizing further service disruptions to logistics operations will doubtless be a primary objective in the coming days and weeks. Preliminary reports indicate that Cho Yang-Ho, the Chairman of Hanjin's parent company, has provided a cash injection of 40 KRW billion to relieve various pressures in this regard, and that Eun-young Choi, the current president at Eusu Holdings (formerly Hanjin Shipping Holdings) and/or one or more of Hanjin's affiliates may be prepared to provide some additional level of emergency funding. It remains to be determined on what terms such additional funding might be provided and/or whether the relevant providers of any such funding would have secured or otherwise protected rights in respect thereof.
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