Hanjin's insolvency: what to expect from a Chapter 15 proceeding.

AuthorHurst, Isaak R.
PositionTRANSPORTATION

The Hanjin situation is in its early stages, and international bankruptcy proceedings are naturally complicated. Indeed, it should come as no surprise that these worldwide proceedings will be difficult to navigate, and creditors will likely be required to carefully consider all options in dealing with Hanjin's perspective rehabilitation.

As many readers are aware, one of South Korea's largest shipping companies, Hanjin Shipping Co. Ltd., has filed for bankruptcy. The insolvency of Hanjin, which is the world's seventh largest container line, will have a significant impact on the global transportation and retail sector. Shippers, charterers, freight forwarders, motor carriers, terminal operators, and commercial retailers are now scrambling to reroute $14 billion worth of cargo, which is packed into 540,000 containers and loaded onto any one of Hanjin's 141 vessels (some owned, some chartered). This logistical nightmare is exacerbated by the fact that these vessels call at every major maritime port on the planet. Indeed, Hanjin's insolvency will cause significant disruptions to the global supply chain, including material delays in the delivery of retailer goods for this upcoming holiday season.

The intent of this briefing is to provide an overview of Hanjin's insolvency, outline which parties will be most affected by Hanjin's collapse, and provide these affected parties with ideas for moving forward as these international insolvency proceedings unfold. Before we begin, however, here is a brief summary of the events leading to Hanjin's insolvency.

Too Big to Fail? Evidently Not in Korea

After losing the support of its banks and trade creditors, Hanjin commenced insolvency proceedings in South Korea on August 31,2016. At the time of the filing, Hanjin estimated its debt to be around 6 trillion won ($5.5 billion), which put Hanjin's debt to equity ratio at 850 percent. This colossal debt to equity ratio is a reflection of the diminished demand in international shipping, which is a combination of too many boats on the water and not enough Americans buying cheap exports from China. As a result, large shipping companies like Hanjin struggled to keep their ships full, and eventually Hanjin's bankers threw in the towel.

After Hanjin filed for bankruptcy, the South Korean Court issued a comprehensive injunction and asset protection order (aka an "automatic stay"), which blocks Hanjin's creditors from arresting or seizing Hanjin assets. The Korean...

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