Chapter 11 Strategies and Techniques--Creditors Committees, Effective Use of Plan Provisions, Objections to Confirmation, Financing a Chapter 11 Case, 'Cramdown' and How it Works

Most shipping companies are not susceptible of being reorganized under Chapter 11 of the U.S. Bankruptcy Code, as amended, (the ‘Code’) or the bankruptcy or insolvency laws of leading foreign maritime nations. Moreover, despite the present depressed state of key segments of the maritime industry and the recent incidence of maritime insolvencies, few companies in the industry have sought protection under Chapter 11. For those companies that have filed under Chapter 11, rehabilitation has been rare. The reasons behind these phenomena are instructive in identifying those elements necessary for a successful plan of reorganization. Some elements are peculiar to the maritime industry. Some certainly are not.  

The Uniform Commercial Code and Bankruptcy

To a commercial lawyer, the mention of bankruptcy and the Uniform Commercial Code in one sentence strongly suggests a series of well-known problems—principally the problems relating to the need to perfect security interests under Article 9 of the U.C.C. in order to prevent the bankruptcy trustee from disregarding the security interest under section 544 of the Bankruptcy Code. Admiralty lawyers may tend to think of an entirely different series of problems when they hear the word bankruptcy—such as which part of the federal district court, admiralty or bankruptcy, administers the property with which they are concerned. Nevertheless, the specter of bankruptcy requires that admiralty lawyers become familiar with the uncertain boundaries between admiralty jurisdiction and ordinary commercial law, including the U.C.C., which governs many common maritime business transactions, lest a bankruptcy trustee complete their education for them. The admiralty practitioner must know the answers to two related questions: (1) what must be done in common commercial shipping transactions so that, under the Uniform Commercial Code, the rights of creditors are not inadvertently lost to the bankruptcy trustee; and (2) in which transactions must attention be paid to Uniform Commercial Code principles as well as, if not in lieu of, traditional admiralty procedures?  

Vessel Arrest Before and After Bankruptcy--The Automatic Stay

With the recent economic downturn and the change from an excess demand for fossil fuels to an oversupply, there has been a tremendous reduction in marine transportation requirements. As a result, both charter rates and utilization rates for vessels have rapidly fallen. The cash flow of companies operating vessels has been reduced to the point where there is insufficient net income to meet debt service on obligations that were incurred in a far better economic climate. Consequently, there are many seriously delinquent ship mortgages and unpaid maritime liens on all types of vessels, both those operating offshore, and those which work on inland waterways. This in turn has created difficult choices for borrowers and lenders. This article will address the problems faced by creditors holding ship mortgages or maritime liens on vessels when considering whether to foreclose on their collateral. It will discuss problems that arise both before and after the debtor has filed a petition for relief under Chapter 7 or Chapter 11 of the U.S. Bankruptcy Code.  

The Protection & Indemnity Club and Bankruptcy: An English Perspective

The purpose of this paper is to discuss, from the viewpoint of a corporation lawyer, protection and indemnity (P&I) clubs under circumstances where the club concerned has become financially embarrassed. As a corporate lawyer, this writer is accustomed to seeing the assets of an insolvent company realized and disposed of in accordance with the normal rules imposed by the country of incorporation. The concept behind P&I clubs—that of a company being a conduit, in some cases the only conduit, for mutual dealings between owners insuring one another severally—is quite difficult to grasp. When considered in the context of an insolvent club winding up, the concept assumes the aspect of fantasy.  

The Impact of a Member's Insolvency or Bankruptcy on a Protection & Indemnity Club

This paper is written for the 1980's, an era when owners and operators of merchant ships have experienced serious financial troubles. Hopefully these problems will wane in the next decades.  

Limitation of Liability: A Critical Analysis of United States Law in an International Setting

This article will examine some of the basic characteristics and variations of limitation of a shipowner's liability contained in international conventions, national laws and the law of the United States. Also, because any semblance of uniformity depends on conflicts of law rules and the effects of multination litigation on limitation, the article will touch on those subjects. The underlying premise is that limitation, in a variety of forms, is a universal concept that, despite criticism, is part of the maritime law and will be for the foreseeable future.  

Foreign Sovereign Immunity and the Arrest of State-Owned Ships: The Need for an Admiralty Foreign Sovereign Immunity Act

Members of the community of nations have traditionally accorded a variety of immunities to foreign sovereigns, their representatives and instrumentalities, and their property. The roots of these immunities are buried deep in history. After centuries of evolution and institutionalization by public international law and the internal laws of the members of the community of nations, one may speak of a generic idea of sovereign immunity that has various manifestations. The foundation of foreign sovereign immunity remains a disputed matter. According to one view, the members of the international community are bound by customary public international law to accord immunity to foreign sovereigns because of their equality and independence; a refusal to do so is a breach of an international obligation. According to another view, foreign sovereign immunity is founded on comity. In the absence of an international treaty, members of the international community are in no way bound to accord immunity to a foreign sovereign; if they do so, it is by virtue of internal rules of law. All agree, however, that the purpose of foreign sovereign immunity is to avoid friction in international relations.

Whether under compulsion from public international law, internal law, or both, ships of foreign sovereigns traditionally have been accorded certain immunities. Ships are property, though of a special kind, and have enjoyed the immunity from arrest and execution that is accorded to the property of a foreign sovereign. Further, ships have been personified for a number of purposes in the United States and in other countries and have been accorded an immunity that resembles the immunity accorded to the person of a foreign sovereign.

This paper will comment on the laws of the United States that govern the immunity of foreign state-owned ships from arrest for the enforcement of maritime claims in American courts. A ship is entitled to a species of immunity that is distinct from the immunity accorded to the person or the property of a foreign sovereign. The origin and development of this immunity will be traced in Anglo-American judicial decisions and other sources of law, and the provisions of the Foreign Sovereign Immunities Act of the United States will be discussed to the extent that they are pertinent to the enforcement of maritime claims. For purposes of comparison, and for the elucidation of a number of problems, brief reference will be made to international conventions and the internal laws of other countries.

Comparative Aspects of Commonwealth and U.S. Law Since the Collision Convention

Unlike parties to a bill of lading or charter party dispute whose contracts enable them to regulate and assess their rights and duties as well as the consequences of a breach, the parties to a collision action are likely to be strangers who neither had an opportunity to set their own standard of conduct nor to select a forum or body of law by negotiation. An owner whose vessel has been involved in a collision therefore may find that his rights and liabilities will vary dramatically depending on the forum in which an action is brought. An international effort toward uniformity in collision cases can be seen in international conventions, in particular the International Convention for the Unification of Certain Rules of Law with Respect to Collision Between Vessels (Collision Convention), the International Convention on Certain Rules Concerning Civil Jurisdiction in Matters of Collision (Civil Jurisdiction Convention), and the International Convention Relating to the Arrest of Sea-Going Ships (Arrest Convention).Although this intention is laudable, substantial national differences remain, not only because the United States has refrained from joining in these conventions, but also because choice of law rules used by courts of signatory states may dictate that some law other than the relevant convention must be applied to the case before them.

The object of this paper is to offer a comparison of the procedural and substantive laws and choice of law rules relevant to collision actions in the principal English-speaking maritime nations. The questions addressed will be the ability to obtain jurisdiction, limitations on the right to arrest or obtain security, the effect of appearance in the action, national substantive doctrines, and choice of law rules both in general and with respect to particular issues.

The 1910 Brussels Convention, the United States Salvage Act of 1912, and Arbitration of Salvage Cases in the United States

The article by Sir Barry Sheen admirably sets the scene for a discussion of conventions on salvage by describing the historical background and the changing scene of salvage over the years. With equal clarity Donald O'May has set forth the history and principal features of Lloyd's Open Form, the revisions to that form effective in 1980, and the principal features of the Montreal Convention held under the auspices of the Comitè Maritime Internationale. The purpose of this article is to describe the genesis of the 1910 Brussels Convention on Salvage and the United States Salvage Act of 1912, and to harmonize the Convention with the decisions rendered under the Act. In addition, the relatively few salvage arbitrations held in the United States will be discussed.  

Water Pollution Laws: Can They be Cleaned Up?

The purpose of this article is twofold. First, the article will survey the existing laws of the United States as they pertain to oil pollution liability and compensation, and payment for cleanup costs. Second, the article will examine the efforts underway, domestically and internationally, that are intended to increase uniformity in the law pertaining to these aspects of oil pollution. This article is not intended to be an exhaustive analysis of the existing federal and state laws providing remedies for pollution damage, as these have previously been examined in detail by others.¹ Rather, it is intended to show that the existing legal framework is so unsatisfactory as to compel the consideration of other options and that other options offering benefits to all affected parties exist.