On March 22, 2018, Sungdong Shipbuilding & Marine Engineering (“Sungdong”), a mid-sized shipyard in South Korea, filed a petition to commence a “rehabilitation proceeding” with the Changwon District Court. A rehabilitation proceeding is a court-administered reorganization proceeding comparable to a Chapter 11 proceeding in the United States. In a rehabilitation proceeding, the debtor continues to do business while restructuring its pre-existing debt.
The Changwon District Court in South Korea has this afternoon (23 March 2018) issued a comprehensive prohibition order (CPO) following the application of Sungdong Shipbuilding and Marine Engineering Co. Ltd (Sungdong) to enter Chapter 11 Rehabilitation filed earlier this month.
The effect of the CPO is to provisionally prohibit all creditors of the yard from taking legal action in South Korea to secure and enforce their claims by attachment, arrest or foreclosing of their security interests.
On 16 October 2018, a new Corporate Restructuring Promotion Act("CRPA") was promulgated, with immediate effect. The CRPA was first enacted in 2001 as a response to the Financial Crisis that began in 1997, causing hundreds of businesses in Korea to close down. Concerned that bankruptcies of larger companies may lead to bankruptcies of lender financial institutions, the CRPA was enacted as a temporary measure to facilitate speedy restructuring of larger businesses, while allowing the businesses to continue operation under supervision of creditor financial institutions.
The three once-major Korean shipping and shipbuilding companies - Hanjin Shipping Co., Ltd. (Hanjin Shipping), STX Offshore & Shipbuilding Co., Ltd. (STX O&S), and Daewoo Shipbuilding & Marine Engineering Co., Ltd. (DSME) - today stand at crossroads of destiny between rehabilitation and bankruptcy. Given the global nature of the operations by the companies, their fate will have a substantial impact on the economy globally.
It has been just over two months since one of South Korea's largest shipowners and operators, Hanjin Shipping Co Ltd (“Hanjin”), applied for court rehabilitation. On 1 September 2016, the Bankruptcy Division 6 of the Seoul Central District Court (the “court”) issued a decision accepting that application and commencing rehabilitation proceedings.
Seoul Central District Court, or the Korean bankruptcy court handling rehabilitation proceedings of Hanjin Shipping Co., Ltd. (Hanjin Shipping) recently took several noteworthy measures. Pursuant to the Court’s decision, the fate of Hanjin Shipping will not be unraveled until February next year. The upcoming dates and deadlines for extended time pursuant to the aforementioned decision are as follows:
- Extended deadline for the claim inspection period: December 5, 2016
The once great shipping giant, Hanjin Shipping Co., Ltd. is now facing liquidation. The appraised liquidation value is 19 trillion won.
This is the second instalment in a series on the US cross-border insolvency statute, Chapter 15 of the Bankruptcy Code, which took effect 11 years ago (for further details please see "Chapter 15 at 11: Bankruptcy Code's cross-border insolvency law approaches 11th anniversary").
On September 9, 2016, Hanjin Shipping Co. won a ruling protecting its assets in the U.S. against creditors, while the shipping line proceeds with its reorganization in South Korea. Hanjin filed for relief under Chapter 15 of the Bankruptcy Code in the United States Bankruptcy Court for the District of New Jersey (U.S. Bankruptcy Court Judge John K. Sherwood in Newark, N.J.).
On September 12, 2016, the Bankruptcy Division of the Seoul Central District Court in charge of the rehabilitation proceedings of Hanjin Shipping Co., Ltd. amended the initial schedule of the rehabilitation proceedings as follows:
Submission of List of Creditors (by receiver): On or before October 10, 2016
Submission of Secured and/or
Unsecured Rehabilitation Claims (by creditors): October 11 – October 25, 2016
Investigation of the Reported Rehabilitation Claims: October 26 – November 15, 2016