With today's globalization, the recently commenced receivership proceeding in Seoul, South Korea, by Hanjin Shipping Co. has created tsunami-like shockwaves affecting every deepwater port in the country.

Virtually every type of business, and even consumers, will be impacted by this insolvency proceeding, and the shockwaves will continue for the foreseeable future. Currently, there are thousands of containers full of goods for delivery to US businesses that are stagnating on the idle ships while the legal issues are resolved.

Hanjin is one of the world's largest container shipping companies, and although its financial difficulties had been somewhat publicized in advance of its receivership filing, very few of those that have been impacted were prepared for the repercussions of the filing.

This proceeding will test the conflict between the bankruptcy laws of many countries, the jurisdiction of the US courts over assets located in this country, and the conflicts between federal maritime law and federal bankruptcy law.

After the receivership filing in Seoul, Hanjin sought protection under Chapter 15 of the US Bankruptcy Code in Newark New Jersey. Chapter 15 was created by Congress following the ratification of international treaties concerning the recognition of foreign bankruptcy and insolvency proceedings throughout the world.

Significantly, once the U.S. Bankruptcy Court recognizes a foreign proceeding under Chapter 15, the automatic stay imposed by section 362 of the Bankruptcy Code becomes applicable, and this precludes creditors in the US from taking action against any asset of the foreign debtor.

Under US maritime law, foreign vessels that come to US ports can be arrested (seized) in order to satisfy unpaid obligations of the ship's owner. US creditors initially jumped on the opportunity to arrest Hanjin vessels when they reached US ports in order to obtain some security for payment of unpaid obligations. While the order of the Bankruptcy Court in Newark is on appeal, creditors in the US are still precluded from commencing the continuing any activity to seize the ships.

However, what is uncertain is whether the bankruptcy stay mandates that Hanjin ships be unloaded and US ports where the payment for the services is uncertain. Many cargo owners, manufacturers of goods and retailers to be the recipients of the goods have prepaid Hanjin for the transport and unloading of the goods shipped from around the world.

Nevertheless, with the freezing of all of Hanjin's assets, those prepayments are of little significance to the port operators and stevedores demanding payment in advance for offloading the cargo containers. The Federal Maritime Commission has recently issued a warning to all involved that it will punish what appeared to be a growing practice of price gouging by those seeking to capitalize on the goods being stuck on the ships in US ports.

For retailers awaiting goods to be offloaded and delivered to the upcoming end of year holiday season, this creates a perplexing problem. Without the timely delivery of the goods and the inability to replace the goods that may be delayed in the cargo holds or at the ports, the retailers can be severely impacted based upon their dependence for importing foreign goods, especially electronics.

Likewise, US manufacturers awaiting component parts for goods to be fabricated and assembled within this country are likewise stymied because production facilities may have to grind to a halt.

All of this will soon play out in the courts of the US, Korea and elsewhere, since extending deference to the Korean receivership proceeding may conflict with statutory, common law and other rights of US creditors and those dependent on the delivery of goods.

While most US bankruptcy attorneys can predict with some degree of reliability which should transpire in the US bankruptcy reorganization proceeding, if deference is given to Korean law, contrary results could occur.

As this author has experienced for the last five years in being deeply involved in the Saab automotive bankruptcy proceeding in Sweden, the “rules of the game” are different.

Thus, those involved in the US must understand the complications created by the conflicts of law questions that may arise. Additionally, there is the inherent conflict between federal maritime laws and the US Bankruptcy Code which could further exacerbate the uncertainty.

Lessors of containers are likewise impacted, since the protection granted to personal property lessors under the US Bankruptcy Code do not necessarily exist under Korean law.

Not even ready for prediction will be the impact of remedial remedies that may be available under Korean law for claw backs and other causes of action available to Hanjin where US courts may be forced to give deference to rights and remedies not otherwise available or enforced in this country.

All of this not only creates tremendous challenges for any business directly involved with the large maritime industry, but it also extends to Main Street USA where there is a dependency on the prompt delivery of foreign goods which can further impact the sometimes floundering retail environment currently existing in the United States.

It is not too early for those directly or indirectly impacted by this foreign receivership proceeding to seek legal advice to initiate both proactive and defensive measures recognizing that foreign law may be binding.

About Charles M. Tatelbaum, Esq.

Charles Tatelbaum is Partner and Chair of Creditors’ rights and bankruptcy practice at Tripp Scott in Fort Lauderdale. For the past 50 years, he has focused his practice on bankruptcy and creditors’ rights issues, complex business litigation, Uniform Commercial Code transactions and lender liability litigation and other types of secured transactions, as well as domestic and international letters of credit.

Charles regularly represents secured and unsecured creditors in transactions and insolvency situations, creditors’ committees, and throughout the U.S. he represents business clients in complex business litigation, the defense of lender liability claims, all types of bankruptcy proceedings and products liability defense based on warranty.