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American ShipperShippingTrade and Compliance

Shipper, terminal operator ask U.S. bankruptcy court to revise Hanjin order

Electronics manufacturer Samsung said in court filings that “cargo owners are being held hostage,” while Maher Terminals said it “is not required to extend free credit to Hanjin, and should not be forced to.”

   A Hanjin Shipping customer and a port terminal operator are asking a federal bankruptcy court to modify an order issued by the court earlier this week in the now insolvent South Korean ocean carrier’s Chapter 15 case.
   In court papers filed Thursday, Samsung Electronics said “cargo owners are being held hostage,” while Maher Terminals said it “is not required to extend free credit to Hanjin, and should not be forced to.”
   Samsung complained there is a “dearth of information about Hanjin’s liquidity position” and capacity to resume operations, and that “phone calls at the business level have not been returned.”
   Each companies made different requests for U.S. Bankruptcy Court Judge John K. Sherwood in Newark, N.J. to modify an interim provisional order he issued Tuesday recognizing Hanjin’s rehabilitation proceeding in a Korean bankruptcy court under Chapter 15 of U.S. bankruptcy law.
   The objections were raised in advance of a continuation of the hearing scheduled for Friday morning.
   Maher Terminals, which operates the largest container terminal in Port of New York and New Jersey, said it is owed millions of dollars by Hanjin for handling containers that have been transported by the carrier or by its alliance partners COSCO, “K” Line, Yang Ming, and Evergreen.
   The company said it has approximately 500 Hanjin import containers at its terminal in Elizabeth, N.J and 600 containers which are due to arrive imminently on non-Hanjin ships.
   Maher said that while it recognizes Hanjin’s need for an orderly proceeding, “That path forward, however, cannot come at the expense and to the detriment of innocent third parties like Maher.”
   According to Maher, Sherwood’s interim order is “prejudicial to Hanjin’s counterparties” because it:
     • Fails to protect Maher’s pre-existing and future lien rights with respect to Hanjin containers remaining in Maher’s terminals;
     • Provides Hanjin’s foreign representative “veto power” in connection with the release of Hanjin containers where beneficial cargo owners (BCOs) are willing to pay the terminal charges owed by Hanjin to have their cargo released;
     • Fails to adequately protect the interests of Maher and others to ensure payment for services rendered and to be rendered;
     • And ostensibly prohibits the arrest or attachment of Hanjin vessels outside the territorial jurisdiction of the United States, the arrest of non-Hanjin vessels within or without the United States, and protects Hanjin vessels from seizure within the U.S. without providing adequate protection to U.S. service providers like Maher that hold valid maritime liens enforceable in rem.
   Maher “has no assurance that Hanjin will pay for the postpetition terminal charges based upon services that will be rendered in order to move inbound and outbound Hanjin containers, and Hanjin has no apparent financing source to guarantee recoveries to creditors that may be forced to provide services for Hanjin’s benefit,” the company said in its filing.
   “It strains credulity that an international shipping company with thousands of creditors and contract counterparties can expect broad relief from this court, yet have no plan for how it will fund its ongoing costs of administration or provide for any assurance of payment for post-petition services,” it added. “Maher is not required to extend free credit to Hanjin, and should not be forced to do so.”
   Prior to Hanjin filing its petition on Sept. 2, the company “approved of requests to release certain of its containers to the extent BCOs were willing to pay the terminal charges owed to Maher,” the terminal operator said.
   “This allowed the flow of goods in the stream of commerce without interruption. While the parties worked during the course of the initial hearing to arrive at a protocol to allow what had become ordinary course of business prepetition to continue post-petition, Hanjin ultimately indicated it lacked authority from a Hanjin decision maker to authorize such a protocol. We are now several days later, and yet no such protocol has been put in place to allow the necessary movements of containers once Maher has been paid for its services.”
   Maher said that it “understands that it has no assurance that Hanjin will pay for the post-petition terminal charges based upon services that will be rendered in order to move inbound and outbound Hanjin containers, and Hanjin has no apparent financing source to guarantee recoveries to creditors that may be forced to provide services for Hanjin’s benefit.”
   The company said relief requested by Hanjin “materially interferes with valuable and unique maritime lien rights that Maher now possesses against Hanjin vessels and non-Hanjin vessels to which stevedoring and marine terminal services were performed” and that the interim order should be modified to protect its maritime liens.
   Samsung Electronics, which told the Newark court earlier this week that it had 616 containers on Hanjin ships off the Coast of Long Beach with cargo valued at nearly $37.9 million, said in its filing it supports also the order, but thought it should be modified “to permit Hanjin vessels to leave port unhindered” and “to expressly permit cargo holders to pay third parties to recover their goods, even though they are stored in containers owned by or leased to Hanjin. This relief makes eminent sense as a practical matter, as it does not prejudice the debtor in anyway and ensures that cargo holders—who are otherwise hostages to these proceedings—can obtain possession of their products in a timely manner.”
   In addition, Samsung said Hanjin “has not demonstrated (or revealed to creditors) any ability to obtain financing for this case or commence even rudimentary operations so that ships can berth and cargo can be delivered. This lack of progress continues to result in significant damage to cargo owners, including Samsung. Given these circumstances, it is time for the court to impose an appropriate process to allow individual cargo owners to obtain possession of their property.”
   “Given the uncertainty surrounding the debtor’s liquidity position and efforts to raise additional postpetition financing—the lynchpin of any successful outcome of this case—one can scarcely think of a debtor more in dire need of a breathing spell than this one. It said proposed provisional relief order would stay all creditor actions against Debtor property located in the territorial U.S. and would prevent arrest of vessels by purported maritime lienholders,” the company said.
   It noted that while some holders of maritime liens wanted an automatic stay in the provisional relief order to “carve out holders of maritime liens,” and that so-called “Rule B attachments” should be exempt from the jurisdiction of the bankruptcy court here and in Korea.
   Samsung termed the order issued by the bankruptcy court that barred arrest of Hanjin’s ships, but also forbid them to depart once docked, “Solomonic.”
   “That splitting of the baby has not worked. The requirement that ships not leave is effectively an arrest order, leaving both Hanjin and ports unsure whether ships that port will ever leave. Not surprisingly, no ships have docked and no cargo has been unloaded since entry of the interim provisional relief order. The court should modify its order, consistent with Korean law, to vacate existing attachments and prohibit the arrest of vessels,” said Samsung.
   Samsung said while it is “supportive of the debtor’s efforts to obtain a true stay of creditor actions against debtor property, the interim provisional relief order must be modified to permit cargo owners to make their own arrangements to secure possession of their property.”
   A provision in the interim order bars any party from “transferring, relinquishing, or disposing of any property of Hanjin to any entity (as that term is defined in section 101(15) of the Bankruptcy Code) other than the foreign representative, except with the foreign representative’s consent.”
   “As several terminal operator objectors observed at the first-day hearing, because the containers in which cargo is shipped are owned by the debtor, this provision arguably bars parties from making their own arrangements to secure possession of their property,” the Korean electronics giant said in its filing with the court.
   “Samsung and several other cargo owners with the consent and support of terminal operators, proposed language that would have specifically addressed this concern by expressly allowing cargo owners to pay any charges to third parties to expedite delivery of their property. Due to the exigency and time difference with Korea, debtor’s counsel refused to consider the inclusion of any such provision in the interim provisional relief order although committed to address the proposal promptly.
   “Notwithstanding this commitment, the debtor has not even responded to the proposal made Tuesday evening. Indeed, debtor’s counsel ignored a request by counsel for a significant number of cargo owners for a conference call Thursday morning to address this issue.
   “There is no reason for this untenable situation to continue,” it added. “Given the dearth of information regarding the debtor’s liquidity position or its capacity to resume operations, restricting the ability of sophisticated, non-debtor third parties to make their own commercial arrangements makes no rational sense. Cargo owners are willing to pay ‘ransom’ to get their property back. Terminal operators and service providers are willing to accept payment to facilitate delivery of that property. There’s no earthly reason why these parties should not be permitted to cut their own deals if doing so would not prejudice the debtor in any way.
   “The debtor’s request that the foreign representative have an unfettered consent right to each and every arrangement—the only offer currently on the table—is unworkable, as there are countless customers trying to retrieve innumerable products at ships and ports across the world,” said Samsung.

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Chris Dupin

Chris Dupin has written about trade and transportation and other business subjects for a variety of publications before joining American Shipper and Freightwaves.
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