Cross Border Insolvency and Ship Arrest

POSTED BY Barbara Versfelt
10 September 2013

posted in Marine, Aviation, Transport, Logistics and Trade | Shipping | Insolvency

VIEWED 10422 TIMES

PERMALINK

New Zealand has implemented the United Nations Model Law on Cross Border Insolvency (Model Law) in the Insolvency (Cross Border) Act 2006 (Act). Under the Act, foreign insolvency administrators may apply to the New Zealand Courts for recognition of insolvency proceedings commenced overseas. Applications under the Act can result in New Zealand proceedings being stayed. Recently an STX Panocean vessel was arrested in New Zealand. As is well known in the market, STX went into receivership in Korea in June 2013. It is understood that the vessel was released from arrest after the Korean receivers posted security for the admiralty claims in the High Court. Apparently, the admiralty claimants will apply for the lifting of the stay of the admiralty proceeding granted under the Act in favour of the foreign receivership proceeding in Korea so as to allow the admiralty claimants to enforce their in rem claims. There is as yet no case law in New Zealand on the question of if and to what extent admiralty in rem claims would be affected by the recognition of a foreign receivership or liquidation under the Act.

Australia has similarly adopted the Model Law. On 11 July 2013, the Australian Federal Court rendered an interesting decision in Yu v STX Pan Ocean Co Ltd (South Korea) in the matter of STX Pan Ocean Co Ltd (receivers appointed in South Korea) [2013] FCA 680. In that case, the foreign representative applied for recognition of the receivership proceeding of STX in Korea as a foreign main proceeding under Article 20 of the Model Law (as enacted in Australia), together with orders for additional relief under Article 21 aimed at preventing creditors from arresting STX’s ships in Australia. The Court granted the order recognising the foreign main proceeding under Article 20. With respect to the additional relief sought under Article 21, Articles 21(2) and 22(1) require consideration of the interests of creditors before any order for relief can be made. In Australia, Article 20(2) preserves the operation of local insolvency laws. In particular, the rights of secured creditors under s471C of the (Australian) Corporations Act 2001 are preserved. In Australia, recognition as a foreign main proceeding under Article 20(1) does not affect the rights of secured creditors which have been preserved by Article 20(2). However, additional orders under Article 21 might affect the latter rights. In the circumstances, the Court was not prepared to grant all the additional orders sought which would have prevented all future arrests of STX ships. The Court held that in rem claims to enforce a maritime lien (such as seamen’s wages, damage done by the ship, salvage) could well be rights of ‘secured creditors’ and come within the operation of s471C of the Corporations Act.

In New Zealand, whilst section 248(2) of the Companies Act 1993 preserves the rights of secured creditors in a New Zealand liquidation, Article 20(2) of the Act does not preserve the operation of insolvency laws or the rights of secured creditors automatically. Instead, under Article 20(2), any creditor or interested person affected by a stay granted under Article 20, may apply to the Court for orders that the stay shall not apply in respect of "any particular action or proceeding, execution or disposal of assets”. The circumstances in which orders may be obtained are not limited to applicable domestic insolvency laws. It will be interesting to see whether the Court will allow both statutory in rem claims as well as maritime lien claims to proceed in admiralty in the face of foreign insolvency proceedings recognised in New Zealand.

COMMENTS (0) Post a Comment

← BACK TO UPDATES