Vol 13 (2016) - Issue 4

Article preview

A United States Bankruptcy Court Enforces the Worldwide Automatic Stay Imposed by a Foreign Court

An order imposing a worldwide automatic stay preventing the enforcement of remedies against the debtor’s assets should, in theory, apply to all of its creditors. In practice, however, when the debtor’s assets and creditors are located outside the jurisdiction that issued such order, there is a risk that such foreign creditors will not comply with the stay, either inadvertently or knowingly. With that in mind, cautious debtors often seek assistance of foreign courts shortly upon the commencement of main insolvency proceedings to ensure the automatic stay will be enforced in jurisdictions where their assets are located. For example, in a chapter 15 case, a foreign debtor can obtain a provisional stay effective within the territorial jurisdiction of the United States shortly after the filing of the chapter 15 petition. But what if a creditor tries to seize the debtor’s assets located in a foreign jurisdiction before the debtor seeks or obtains the foreign court’s assistance?
No problem, says the United States Bankruptcy Court for the Southern District of New York (the 'Bankruptcy Court'). In the chapter 15 case of Daebo International Shipping Co., Ltd. ('Daebo'), the Bankruptcy Court held that the Korean court order imposing a worldwide stay of all collection efforts against Daebo barred Rule B maritime attachments made against Daebo’s vessel docked in the United States after the commencement of the Korean proceedings and before the filing of a chapter 15 petition in the United States.

Background
Daebo is a Korean dry-bulk cargo shipping company. In 2007, it purported to sell the TRADER, a vessel, to Shinhan and to lease it back from Shinhan. The sale and leaseback, however, resembled secured debt more than a true sale: (i) the rent payments were based on the amounts needed to repay the funds advanced by Shinhan and an agreed interest rate; (ii) at the end of the ten-year lease, Daebo had the right to take title of the vessel at no further cost; (iii) Daebo carried the risk of loss of the vessel; (iv) Shinhan filed a mortgage lien on the vessel; and (v) in the event of a default, Daebo was required to pay a loss amount that included outstanding principal and interest.
In February 2015, Daebo applied for rehabilitation under Korea’s Debtor Rehabilitation and Bankruptcy Act (the 'DRBA'). Its application listed the TRADER as its tangible asset, and Shinhan as a secured creditor with the TRADER as its collateral. With the Korean court’s blessing, Daebo and Shinhan reached an agreement to sell the TRADER and use the proceeds to repay the balance owed to Shinhan, and distribute the remainder to other creditors.