The debtor in a shipping case will usually have a range of jurisdictions to choose from to seek temporary protection from creditors. The flip-side of the coin is that creditors and counterparties will likely be able to commence insolvency proceedings and/or invoke maritime law remedies in jurisdictions beyond the reach of the main forum. This might not be as conducive to a coordinated and centralised recovery effort (or even liquidation effort), both prior to the debtor filing or, in certain circumstances, afterwards. A key factor in devising strategy is the extent of the international reach of the main insolvency proceedings. While most jurisdictions, as a matter of domestic law, will promote a universalist approach to the conduct of restructuring and insolvency proceedings, the practical reality – including, crucially, the extent of recognition of those proceedings in other jurisdictions – can differ markedly. The widely-accepted gold-standard in this regard is the stay applicable under Chapter 11 of the US Bankruptcy Code; often, even if the strict legal position in other jurisdictions would admit unilateral enforcement action notwithstanding the existence of a Chapter 11 case, the reality is often that the international reach of creditors’ interests militates against taking action which might have adverse consequences in the US.
An alternative route for the debtor (although this and US proceedings need not always be mutually exclusive) might be to seek bankruptcy protection in its home jurisdiction and/or the jurisdiction in which it has its “centre of main interests”; and to bolster the protections available under the laws of such jurisdictions by seeking recognition of the main proceedings in different jurisdictions in which the prevention of creditor actions is critical to the delivery of a successful turnaround. In the case of those jurisdictions which have enacted into their local laws the UNCITRAL Model Law on Cross-Border Insolvency (which includes Australia, Canada, Gibraltar, Greece, Japan, the Republic of Korea, the UK and the US), that is the obvious route (where available) for foreign debtors and/or insolvency office-holders seeking recognition and/or the making of additional in-bound requests for assistance.
The concern of a debtor company – or a restructuring official or insolvency office-holder appointed to the debtor – will be to ensure an environment which is conducive to an unimpeded turnaround effort. It will be important for the debtor and its advisers to work closely together (for example, with input from in-house logistics/operations teams and referring to reports showing future vessel movements) in order to pin-point the “candidate” jurisdictions with assets present for recognition purposes. It will then be a question of deciding the jurisdictions in which to obtain recognition, in order to help bolster any central restructuring effort or a unitary insolvency proceeding. The effects of recognition in a particular jurisdiction will be a key determinant in this respect. In particular, the reach and scope of any stay which applies automatically on obtaining recognition and whether, for example, it applies to stay the commencement or continuation of court or arbitration proceedings against the debtor and its property and/or prevents the enforcement of security. Given that ships are likely to trade in multiple jurisdictions, it might not always be possible to obtain recognition in all the jurisdictions where the ships might be at risk of arrest.
A related question in terms of staying proceedings is whether it is necessary in the jurisdiction in which recognition is being sought to provide notice of the recognition application to parties to any litigation or arbitration. Giving notice gives the party in question an advantage that it would not receive in the event of the commencement of main proceedings and can provide it with an opportunity to be heard on the recognition application. This can result in the proceedings in question being carved out of the stay applicable on recognition (potentially undermining a centralised turnaround or insolvency process) and, in the extreme, potentially delay and jeopardise the obtaining of recognition.
In the case of member states of the European Union (excepting Denmark), the EC Insolvency Regulation will ensure automatic, EU-wide recognition of qualifying insolvency proceedings commenced in other member states, without any further act on the part of the debtor or insolvency office-holder concerned (although this is subject to certain exceptions). The recent revision of the EC Insolvency Regulation (with most of the changes becoming effective from June 2017) develops the existing provisions relating to the coordination between insolvency proceedings relating to the same debtor in different jurisdictions in which the Regulation applies, as well as containing a new regime for the coordination and conduct of group insolvencies. These changes can be expected to have a positive impact for debtors looking to implement restructurings across international borders.