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In the past two or three years, we have seen a wave of ship-ping companies file Chapter 11 bankruptcy cases in the United States. This latest wave started hit- ting the street in about 2011 and has included such names as General Mari-time, Omega Navigation, Marco Polo, TBS International, B&H, and OSG. The timing is no mystery to anyone who has been following our industry, and I do not think it is too controver- sial to suggest that what we are seeing now are the continuing effects of the precipitous collapse of freight markets starting in 2008 which, in turn, caused a significant and probably long-term drop in ship values.After 2008, owners were finding themselves with huge mortgage pay-ments on significantly devalued ves-sels generating substantially reduced revenue streams, and even those own-ers who had been fortunate enough to lock in high value long-terms charters were finding themselves under im-mense pressure, either because their charterers were demanding signifi-cant concessions or were defaulting altogether. Lenders, reluctant to mark down losses and become owners of large fleets of foreclosed vessels, have done what they could to work with ves-sel owners to get through this difficult period. But the banks themselves have come increasingly under pressure, and forbearance can only go so far. Most of the recent maritime filings have involved foreign shipping compa-nies, some with arguably only tenuous contacts with the United States. Why have they come?1. Automatic StayPerhaps the most obvious advantage is the automatic stay provided for in Section 362 of the bankruptcy code. This is an automatic injunction which comes into immediate effect upon the filing of a Chapter 11 petition. It bars any party from taking steps to pursue or enforce claims against the debtor or property of the estate outside the bank-ruptcy proceedings. It has worldwide effect, and the consequences for violat- ing it can be severe.Does this mean that every claim ev-erywhere in the world will be imme-diately stopped and drawn into the bankruptcy action? No. The power of the bankruptcy court to enforce its orders extends only so far as its juris-diction over parties and property. But importantly ? particularly in this latest crisis ? nearly every international ship-ping bank has at least some presence in the United States, which means that they would run a high risk in ignoring a U.S. bankruptcy court?s orders. 2. Critical Vendors Somewhat the flip side of the auto-matic stay is the ability of the debtor to make an application in the very early stage of the case for leave to allow it to pay its ?critical vendors? even for pre-petition obligations. The purpose, of course, is to ensure that the company can continue its day to day operations while it attempts to restructure. With a shipping company, this is likely to include paying agents? fees and costs, managers? fees, bunkers, supplies, maintenance and repair costs, port costs, and so forth. Clearly, if the com- pany cannot ensure that those kinds of suppliers will continue to do business with it after the bankruptcy filing, then 18 Maritime Reporter & Engineering News ? APRIL 2013 LEGAL BEAT Does Chapter 11 Work for Foreign Shipping Companies? Thomas J. Belknap, Partner and Vice Practice Group Lead- er of Blank Rome?s Internation- al and Maritime Litigation/ADR practice group, concentrates his practice in the areas of in- ternational commercial and in- surance litigation and arbitra-tion, with particular emphasis on the maritime industry. e: TBelknap@BlankRome.comMR #4 (18-25).indd 18MR #4 (18-25).indd 184/1/2013 3:57:16 PM4/1/2013 3:57:16 PM
