Recent trade publications have prophesized a wave of shipping
bankruptcies. We have already seen several in the United States in
2011, such as Omega and Marco Polo. Trailer Bridge and General
Maritime fi led in November. There will undoubtedly be more,
despite the potential debtors having little or no connection to the
United States. In this respect, non-U.S. listed shipowning
companies considering restructuring and reorganization may not
factor in the potential for a U.S. main proceeding under Chapter 11
reorganization on the assumption that they do not qualify to be
U.S. debtors. They would be mistaken; not least because of the
right of resort to the U.S. bankruptcy court's expansive view
of its jurisdiction to prevent interference with a Chapter 11
debtor's property wherever it is located (such as by way of
vessel arrests in Hong Kong and Singapore in the U.S.
Lines case that subjected the bunker supplier to a $5,000 per
day penalty). This is a fairly unique U.S. concept of the
restructuring protection given to a debtor. It should be noted that
such protection is afforded to Chapter 15 debtors (i.e.,
those that have fi led their main bankruptcy case outside the U.S.)
only in respect of property within the territory of the
U.S. At present, the U.S. Bankruptcy Code, as interpreted by case
law, provides liberal provisions for foreign companies seeking to
reorganize under the protections of Chapter 11.
Who May Be a Debtor?
The Bankruptcy Code, 11 U.S.C. § 109, says that a person or
entity with a U.S. residence or domicile, or a U.S. place of
business or "property", qualifi es to be a U.S.
The case law interpreting "property in the United
States" has expanded the potential for the fi ling by an
otherwise non-resident entity. For example, in the 2009 case of
Petrorig 1 Pte Ltd., et al., which was fi led in the
Bankruptcy Court of the Southern District of New York, the
Singapore debtor's only assets were oil rigs under construction
in Singapore and a "riser"—the title to which
was disputed—in Louisiana. Nevertheless, two weeks prior
to the bankruptcy fi ling, they had deposited a substantial
retainer with their bankruptcy counsel. That, apparently, suffi
ced. The case has remained rooted in the United States.
More recently, the same judge in the 2011 Marco Polo fi
ling denied the secured lenders' attempts to dismiss the case
on the basis that the foreign shipowning companies failed, among
other things, to qualify as U.S. debtors. He held that certain
property in the U.S. was suffi cient. This included unallocated
pool revenue (subject to setoffs) "in conjunction with" a
legal retainer to bankruptcy counsel which, he concluded, had not
been remitted solely for the purpose of manufacturing jurisdiction,
because "there were contacts with the [U.S.] beyond the
payment of the retainer."
In another maritime bankruptcy case, Global Ocean
Carriers, which was fi led in the Bankruptcy Court of District
of Delaware in 2000, business documents, various bank accounts
(regardless of how much was actually in them), and an unearned
portion of legal retainers held in escrow was again held to be
suffi cient "property" to permit that company to qualify
as a U.S. debtor.
Of significant interest is the case of Cenargo International
PLC, which was filed in New York in 2003, where the debtor
opened bank accounts in late 2002 and then filed for bankruptcy
protection in February 2003. Those accounts were held to be
"further support for a fi ling." In this case, the judge
specifi cally sustained the fi ling and applied the automatic stay
to one of the mortgagee banks over whom it had personal
jurisdiction and thereby injunctive powers to prevent interference
with the debtor's property "even if foreign courts ...
chose not to enforce it."
Challenges to Jurisdiction
Notwithstanding the case law that permits even a de
minimis deposit of "property" into a bank account,
even where that account is held by way of a retainer by the lawyers
fi ling the case, consideration should also be given to potential
challenges to such "manufactured" jurisdiction based on
absention or "bad faith" grounds. As always, pre-planning
and consultation with counsel is advised at the earliest stage
Napoleon's dictum that the "worst decision to make is
not to make a decision" is especially true in distressed
shipping cases. Secured creditors and other creditors in multiple
jurisdictions may preempt the shipowner's decision whether to
seek the worldwide bankruptcy protection for their trading assets
(i.e. ships) afforded to U.S. debtors. By then, it may be
too late and the shipowner may find itself in a liquidation
proceeding—over which it may have little
control—and the potential "going concern"
value, as well as the potential for restructuring, will be lost to
"fi re sales."
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