Page 52 - SMI Issue 62

From the BrigBy ISSA’s legal expert Bruce HaileyLook behind the nameIt has been just a few weeks since the shocking news that Hanjin Shipping has sought protection from the Korean Courts by filing for receivership in what now almost certainlyseems to be the first step on the path to bankruptcy and the permanent closure of the company.This is not the only name to hit the headlines recently,with Swiber Offshore also seeking protection from the courts while it attempts to restructure and Hansa Treuhand reporting further insolvencies. The widely reported efforts of Rickmers Maritime Trust to renegotiate its bonds is just one example of the problems faced by some of the most respected names in shipping. The problems are faced across many sectors, with the tanker market also now facing difficult times.All of these events should serve as a reminder to everyone serving the ship owning and chartering industries that itis necessary to look behind the name, and not to take past performance as a guarantee of future performance. Of course, suppliers want to be loyal to customers that have supported them for many years and that is admirable. However, years of profits can be wiped away in an instant, if a significant customer becomes insolvent. Now is not the time for sentiment, but rather for hard-nosed commerciality.Many small companies are quietly disappearing every week, with vessels abandoned to their banks in ports around the world. It is difficult to predict who will be the next major victim of the market, but the maritime press is full of stories of major shipping companies renegotiating their loans, bonds and charter-parties to assist them through the present market.What is certain is that there will be further company failures that will take the market by surprise. Sometimes there will be warning signs (lengthening delays to payment, crews who are unpaid, vessel maintenance being neglected, shoreside staffing changes, switching of suppliers, vessel arrests) but often not.Now is not the time to be extending credit lines and payment periods to assist your loyal customers. Whilst it may be appreciated, this only serves to put you further down the list of priorities of your struggling customer, when you are quite possibly the most in need. If your customer cannot find the comparatively small sums to settle your bills then there is genuine cause for concern. You will be well advised to keep a tight control on credit, and be cautious of new opportunities.So what can be done if you are faced with a customer who enters into an insolvency process? The options available to an unpaid supplier will depend upon their individual circumstances and specialist legal advice is essential. Unfortunately, in some cases there is nothing to be done but to await the outcomeof the insolvency process, which will generally end with littleor no payment. In other cases, there may be possibilities. It is necessary to analyse the relationship between the customer and the vessel supplied. It may be possible that the vessel was under charter, and that a claim can be made against the vessel upon its redelivery to its owner. It might also be possible to arrest a vessel or other asset of the insolvent company in a country that does not recognise the insolvency proceedings.The proper incorporation of the ISSA Conditions of Sale into sales contracts can also assist, in particular due to the choice of law and jurisdiction provisions and the retention of title clause. The retention of title provisions may enable the unpaid supplier to recover goods delivered but not yet consumed, or to compel the liquidator to pay for them if it wants to consume them. This is a complex area of law where prompt and specialist legal advice can make the difference.No-one should take false hope, and expect that insolvencies don’t matter and that recoveries can be made regardless. However, in some circumstances all is not necessarily lost. Advice should be taken from lawyers with an international outlook. u50 | The Ship Supplier | Issue 70 2016