Surviving Supply Chain Disruption and Financial Insolvency - Lessons learned from Hanjin HTC Long Beach, CA February 8, 2018
Today s Topics Insolvency in the supply chain and logistics industry. Doing Business with a Debtor in Bankruptcy Chapter 11 Retail Bankruptcies On The Increase
Freight Invoice
US Trade Deficit U.S. Trade Deficit Grew to $566 Billion in 2017, Its Widest Mark in Nine Years U.S. purchases of Chinese goods and services last year were $375 billion greater than Chinese orders from the United States 10% increase with Mexico https://www.wsj.com/articles/u-s-trade-gap-highest-in-nine-yearsin-december-1517923918?mod=djemlogistics
Insolvency and Disruption Steamship Lines Over capacity Low freight rates Congestion Inability to get new sources of funding Importers and Retailers Under $800 duty exempt E-commerce Market changes
Ocean Freight Rates Spot rates crashed in September of 2017 The volatile Asia-East Coast South America trade, which is one of the longest and costliest routes to service, saw spot container rates fall from $3,800 per TEU to $2,200 per TEU in just 11 weeks, according to SeaIntel Maritime Analysis. https://www.americanshipper.com/main/news/spot-ratescrash-on-asiaecsa-trade-amid-higher-cap-69091.aspx
HANJIN
THE LITERAL BIG PICTURE THE KOREA TIMES http://www.koreatimes.co.kr/www/news/biz/2016/04/123_203385.html
CHAPTER 15 PROCEEDING Debtor files petition in U.S. Bankruptcy Court for its recognition of a foreign bankruptcy case. Upon recognition, the debtor receives the benefits of U.S. bankruptcy law, including the automatic stay, which halts lawsuits and prevents creditors from seizing assets. Provides court with lists of litigation and interested parties in the U.S.
CHAPTER 15 BASICS Petition for recognition; Notice to certain parties; Recognition hearing, usually within about 30 days; and No protection during that gap period unless the debtor gets provisional relief.
HANJIN TIMING: TANDEM FAST-TRACK Fast-tracked in South Korea by one-day turn-around. Fast-tracked in U.S. by grant of provisional relief within five days of the filing of the Chapter 15 petition.
REHABILITATION ACTION Seoul Central District Court Sixth Bench of the Bankruptcy Division
MAKING A CLAIM IN THE SOUTH KOREAN CASE Power of attorney. Corporate nationality certificate. Supporting documents. Notarized, apostilled, and translated. Distinguish between prefiling and post-filing debt. TIME-CONSUMING!
RETAIL
Ascena Retail Group Inc YTD 20%
Macy s M = $20.44 on 8/14 Today s close $24.00
Vince VNCE = $.50 on 8/14 Today s close $7
Stein Mart YTD -56.03%
Expected Bankruptcy 2018 Sun Pacific Holding Corp. Sears Holdings (parent company of Sears and Kmart) Razer Inc. Vince Holding Corp. The Bon-Ton Stores Bebe Stores Inc. Destination Maternity Corp. Destination XL Group Inc. Stein Mart Inc. Christopher & Banks Corp. Sears Hometown and Outlet Stores Inc. Burlington Stores Inc. http://www.businessinsider.com/retail-bankruptcies-expected-in-2018-2017-12
CAUGHT IN THE MIDDLE 3PL NVOCC Warehouse Motor carriers
SUBORDINATION Lenders want control over collateral inventory of borrowers, i.e. importers/retailers/etc. The Customs Broker acknowledges that the underlying purpose of this Agreement is to enable Collateral Agent to protect its security interest in property of Company. Subordination of specific and general liens.
LIEN PRESERVATION/SURVIVAL Refusal Carve outs This Agreement in no way alters or changes NVOCC or IAC s carrier contracts, including but not limited to, 3PL s ocean bills of lading or air waybills. 3PL s Custom s Broker s, NVOCC or IAC s general and specific liens shall not be in excess of $300,000 in the aggregate. Liens must survive delivery. Adaptation and variation Indemnity for following the instructions of the Lender
LIEN ENFORCEMENT Possessory Statutory Common Law Conflict with bankruptcy
CA Civ Code 3051.5 (a) A carrier has a lien on freight in its possession for the total amount owed the carrier by the shipper for freightage, charges for services and advances due on freight previously delivered upon the promise of the shipper to pay freightage, charges and advances, as provided in this section. (b) The lien provided by this section shall not arise: (1) Unless the carrier has notified the shipper, in writing, that failure to pay billed charges may result in a lien on future shipments, including the cost of storage and appropriate security for the subsequent shipment held pursuant to this section. https://law.justia.com/codes/california/2011/civ/division-3/3046-3066/3051.5/
Easy Credit Check credit references; Check public records; Sec. of State Revocation Suspension Failure to pay State Tax Reduce credit limit, and Revoke credit approval.
Four Steps To Take If Signs of Economic Distress Present 1. Stop all orders on credit terms.
2. Get advance payment orders, if possible
3. At the very least, get paid for goods COD
4. If none of these are possible, find healthier Buyers and maximize payment recovery from the Distressed buyer on invoices more than 90-days old to avoid potential preference exposure.
Doing Business with a Debtor in Bankruptcy
Types of Bankruptcy Chapter 7: Liquidation Chapter 9: Municipalities Chapter 11: Reorganization Chapter 12: Family Farmers/Family Fishermen Chapter 13: Individuals Meeting Certain Standards Chapter 15: Cross-Border/International Cases
Priority of claims (Waterfall)
Bankruptcy Chapter 11 In Chapter 11 cases, debtor may operate its business and use its property in the ordinary course of business, without permission from the bankruptcy court Ordinary course of business not defined If lien on Debtor s cash, then Debtor needs lender s consent or bankruptcy court s authority to use cash Example: Sports Authority
Chapter 11 Process
The Automatic Stay ( 362) The automatic stay stays litigation against a debtor that was or could have been commenced prior to the commencement of the case, whether by way of administrative, judicial or similar proceedings or any attempt to collect or recover a prepetition claim against the debtor, the debtor's property or property of the estate. However, the automatic stay does not apply to claims that arise after the commencement of the case.
Beneficiaries of the Automatic Stay When/to whom it Applies When it doesn t apply The Debtor Property of the Estate Property of the Debtor Third Parties (i.e. principals, officers, directors, or affiliate non-debtors of a debtor) Co-defendants in litigation in which Debtor is also a party.
Violating the Automatic Stay If a creditor violates the automatic stay with knowledge of the pending bankruptcy case, the court can and will impose sanctions against the creditor for violating the stay. 11 U.S.C. 362(k).
Relief from the Automatic Stay Relief may be obtained from the automatic stay by filing a motion. There are various grounds that exist upon which relief may be granted: 1. "cause ; and/or 2. where the debtor does not have any equity in the property at issue and the property is not necessary for an effective reorganization of the debtor.
Termination of the Automatic Stay The automatic stay terminates when: The case is dismissed or the debtor receives a discharge; Property is no longer property of the Estate; If the debtor filed a bankruptcy that was dismissed within one (1) year of the filing then the automatic stay terminates 30 days from the filing unless the debtor can show that the second case was filed in good faith; or If the debtor had two (2) or more bankruptcy cases dismissed within the past year.
Questions Cameron Roberts Roberts & Kehagiaras LLP 310-448-2997 www.tradeandcargo.com Bankruptcy information provided courtesy of: