PPS Alert – What happens when your supply chain is affected by an insolvency? Hanjin Shipping Case

Nov 16 2016

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PPS laws in Australia and other countries (100+ PPS laws and registers) can protect businesses and financiers if a key member of their supply chain becomes insolvent.

Recently, our own experts in PPS (Peter Mills) and international insolvency (Neil Hannan) joined forces to advise the administrator of Hanjin Shipping Co. Ltd (Hanjin).  Hanjin is one of the world’s largest container ship operators.  As a key member of literally thousands of businesses’ supply chains, it was carrying some USD $14 billion worth of cargo when our client was appointed, and its worldwide creditors are owed almost USD $840 million.

Peter and Neil obtained urgent court orders to protect Hanjin’s vessels and cargo from arrest which  enabled delivery of the cargo to businesses of many supply chains.  By doing so, we ensured that many businesses (including likely other clients of Thomson Geer and creditors in other countries) received their assets.  This reduced not only potential claims against Hanjin, but also potential claims against other businesses in the supply chains.

The application was based upon the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency that has been incorporated into the domestic law of Australia and a number of its trading partners.

The Federal Court made orders recognising Hanjin’s Korean restructuring proceedings and preventing  creditors of Hanjin from seeking to enforce debts or commence proceedings against Hanjin in Australia.

Many of Australia’s trading partners have PPS laws similar to Australia.  Special international insolvency rules often also apply so as to restrict the holder of a security interest’s right to enforce their security.  If your assets travel through one or more of such countries before arriving at their ultimate destination, your assets, rights and accounts receivable might be deemed to be “located” in another country, and so you may not be able to commence any effective court proceedings in Australia.

We are often asked to advise businesses on PPS laws in other countries, risk management, and what to do if part of a supply chain becomes insolvent.  This is especially relevant to importers and financiers of inventory & accounts receivable.

Businesses and their financiers should consider the various PPS laws and registers and the special insolvency rules so as to best protect themselves if a key member of a supply chain becomes insolvent.  We will shortly be publishing a separate PPS Alert on some of the many issues and risk management actions that businesses and financiers can use to reduce potential loss.

Note: Peter sits on several industry and government committees, providing expertise on PPS laws, including foreign committees and PPS’s international issues.  Neil is a recognised expert on cross border/ international insolvency and a member of the Law Council’s insolvency and reconstruction committee and recently published a text as part of his doctorate on cross border insolvency law.

For further information please contact:
Peter Mills | Special Counsel | +61 7 3338 7921| pmills@tglaw.com.au
Neil Hannan | Partner| +61 3 8080 3589 | nhannan@tglaw.com.au