THE REHABILITATION OF HANJIN SHIPPING – WHAT YOU NEED TO KNOW.
1.
Current Situation
Hanjin Shipping Co Ltd (“Hanjin Shipping”), applied for Court
Rehabilitation to the Seoul Central District Court (Bankruptcy Division 6). On
1 September 2016 the said Court issued a decision accepting Hanjin’s
application, thereby commencing the rehabilitation proceedings (“Rehabilitation”).
2.
What is Rehabilitation?
Rehabilitation is the procedure whereby debtor’s
debts are adjusted by a Rehabilitation Plan which is admitted by the court
under the “Debtor Rehabilitation and Bankruptcy Act”
Under the Rehabilitation Plan, a debtor’s debts
can be reduced, payment can be delayed, and interest rate can be lowered.
3.
As a creditor, is there anything I need to do to get
involved in the Court proceedings in South Korea?
Creditors should report their
claims between 20 September 2016 to 4 October 2016. As part of this
claims notification, supporting documents or evidence should be submitted.
Hanjin Shipping will report its
debts to the court. If Hanjin Shipping does not report some of its debt and a
creditor also does not report its claims against Hanjin Shipping to the court,
then a creditor will lose it rights of claim under the rehabilitation
procedure. Theoretically, it is possible for a creditor to check Hanjin
Shipping’s debt report and if Hanjin Shipping has reported their claim, and if
so, the creditor will not be required to report the claim. However, given that
Hanjin Shipping is a very big company, the creditors’ list will be very long
and verifying a creditor’s claim will not be easy. We strongly recommend
creditors to report their claims to the court within the required period above.
After creditors report their claim to the court,
they may be updated by the court on the Rehabilitation.
4.
Is there any steps that I should take to preserve or protect my claims
against Hanjin Shipping, their subsidiaries and/or their assets?
1)
Under
Rehabilitation, the creditor should report
the claims to the court. Under Korean law, the creditors cannot take
any protective measures against Hanjin Shipping’s assets.
2) Hanjin Shipping’s subsidiaries are independent
legal entities. Hanjin Shipping’s creditor(s) cannot take any legal action
against its subsidiaries. Subsidiaries’ shares which Hanjin Shipping owns are
Hanjin Shipping’s assets. But as explained, creditors cannot take legal action
against the assets.
3) Setoff => most effective measure
As explained in “(1)”, the reporting
period starts 20 September 2016, so if creditors have plans to perform setoff,
they should do it between 20
September to 4 October. The claims
report submitted by the creditor to the court should take into account the
Setoff (if any) made by the creditor.
5.
(a) Am I prevented from
commencing or continuing legal proceedings against Hanjin Shipping, its subsidiaries or assets in South
Korea?
Upon commencement of the Rehabilitation,
litigation procedures on Hanjin Shipping’s assets shall be suspended under
Korean law.
(b) How about overseas legal proceedings?
We first address the possible actions that
Hanjin Shipping can take in foreign countries.
1)
Hanjin Shipping
can apply for the foreign court to recognize the Rehabilitation. Hanjin
Shipping apply for the equivalent / similar “Rehabilitation” proceeding in the
foreign courts (e.g. Singapore). One important consideration that a foreign
court takes into account is where Hanjin Shipping has assets and liabilities in
their country and whether it is necessary for the courts therein to take action
for the orderly administration of those assets and liabilities.
In (2) it is very clear that all procedures will
follow the law of the foreign courts.
In (1) the foreign court’s role will be to
assist the Korean court and take some measures in accordance with the law
applicable to the foreign court.
It is worth mentioning that
the position of Singapore Courts is that schemes of arrangement do not have extraterritorial
effect on assets located beyond the relevant jurisdiction save in accordance
with applicable law and/or treaty. There is no applicable law or treaty which
would allow “Rehabilitation” proceedings to have effect in Singapore.
6.
How are Hanjin Shipping’s subsidiaries affected by the bankruptcy
protection proceedings?
Hanjin Shipping’s subsidiaries are independent
legal entities.
If Hanjin Shipping’s rehabilitation influences
its subsidiaries, the subsidiary can apply for Rehabilitation for its own
business reasons, and not just because its parent company, Hanjin Shipping, has
applied for Rehabilitation. In Korea, in
many cases, subsidiaries entered into rehabilitation procedure together with
parent company, because subsidiaries’ businesses rely on their parent company.
However, if a subsidiary’s business is healthy,
it may choose not to enter into a rehabilitation procedure. However, as
mentioned above, Hanjin Shipping can sell subsidiary’s share which Hanjin owns.
7.
If I am a secured creditor, would my rights over assets of Hanjin be
affected by the bankruptcy protection proceedings?
Yes. A secured creditor’s rights will also be
dealt with through the rehabilitation procedure and it is therefore necessary
for you to take all the steps as provided above, which are applicable for all creditors.
8.
What should we expect to happen in the next 3-6 months
The Custodian for Hanjin Shipping is required to
submit a “Rehabilitation plan” no later than 25 September 2016. Separately from
the Custodian, creditors or shareholders can develop its own “Rehabilitation
plan”.
The court will evaluate the Rehabilitation plan.
If the court decides that the Rehabilitation plan is not reasonable, the court
can dismiss/ discard the Rehabilitation procedure and can declare bankruptcy
(i.e. if the value of assets of Hanjin Shipping is smaller than its debt and
the plan cannot be performed). The court can also order that amendments be made
to the proposed plan.
If the court approves the proposed plan, the
proposed plan will then be put to the creditors will be resolved by vote of
creditors or secured creditors who have voting power (not all creditor or
secured creditor) in an assembly of interested persons. After the successful
passing of the resolution by the creditors, the court will authorize the plan.
Taejin Kim, partner attorney at K&P Law Firm
taejin.kim@kimnpark.com
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This article is a joint collaborative effort between K&P Law Firm and Joseph Tan Jude Benny LLP, our network partner in Singapore. For further information and in particular, to find out how to file a claim against Hanjin Shipping in the Seoul Central District Court (Bankruptcy Division 6), please contact:
Walter Ferix Silvester of Joseph Tan Jude Benny LLP; walterferix@jtjb.com
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