Kim v Daebo International Shipping Co Ltd

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FEDERAL COURT OF AUSTRALIA

Kim v Daebo International Shipping Co Ltd

[2015] FCA 684

Citation: Kim v Daebo International Shipping Co Ltd [2015] FCA 684
Parties: CHANG-JUNG KIM, IN HIS CAPACITY AS FOREIGN REPRESENTATIVE OF DAEBO INTERNATIONAL SHIPPING CO LTD v DAEBO INTERNATIONAL SHIPPING CO LTD
File number: NSD 382 of 2015
Judge: RARES J
Date of judgment: 8 May 2015
Catchwords:

BANKRUPTCY AND INSOLVENCY – ADMIRALTY – cross-border insolvency – recognition of foreign proceeding under Art 17(1) of the Model Law on Cross-Border Insolvency of the United Nations Commission on International Trade Law – recognition of foreign main proceeding pursuant to Art 17(2) – recognition of foreign representative under Art 2(d) – identification of debtor’s centre of main interests – whether upon recognition of foreign proceeding court should exercise power under Art 21(1) to prohibit commencement of or stay continuation of actions concerning debtor’s assets, obligations, rights or liabilities – scope of stay or suspension – whether creditor with right to bring or continue action in rem under Admiralty Act 1988 (Cth) for maritime lien or proprietary or secured maritime claim should be prohibited or stayed

ADMIRALTY –whether plaintiff with right to bring or continue action in rem under Admiralty Act 1988 (Cth) for maritime lien, or proprietary or secured maritime claim ought be automatically prohibited or stayed from doing so – circumstance where action in rem enforceable notwithstanding stay under Cross-Border Insolvency Act 2008 (Cth) and Model Law – creation of secured interest prior to or on commencement of action in rem – requirement  following decision in Yu v STX Pan Ocean Co Ltd (2013) 233 FCR 189 to ensure that, prior to issue of arrest warrant in a proceeding in rem, a judge considers whether plaintiff’s claim based on existing secured interest justifying issue of warrant

Legislation:

Admiralty Act 1988 (Cth)
Bankruptcy Act 1966 (Cth)
Corporations Act 2001 (Cth)
Cross-Border Insolvency Act 2008 (Cth)

1952 International Convention relating to the Arrest of Seagoing Ships
1999 International Convention on Arrest of Ships
Debtor Rehabilitation and Bankruptcy Act of the Republic of Korea
Model Law on Cross-Border Insolvency of the United Nations Commission on International Trade Law  
Cases cited: Ackers v Saad Investments Company Limited (in official liquidation) (2010) 190 FCR 285
Akers v Deputy Commissioner of Taxation (2014) 223 FCR 8
Atlasnavios Navegacao LDA v The Ship Xin Tai Hai (No 2) (2012) 215 FCR 265
Comandate Marine Corporation v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45
Harmer v Bell (The Bold Buccleugh) (1851) 7 Moo PC 267
Hur v Samsun Logix Corporation [2009] FCA 372
In re Aro Co Ltd [1980] Ch 196
Johnson v Black (The Two Ellens) (1872) LR 4 PC 161
Programmed Total Marine Services Pty Ltd v Ships “Hako Endeavour” (2014) 315 ALR 66
Ship Hako Endeavour v Programmed Total Marine Services Pty Ltd (2013) 211 FCR 369
Yu v STX Pan Ocean Co Limited (2013) 223 FCR 189
Date of hearing: 8 May 2015
Place: Sydney
Division: GENERAL DIVISION
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Details
Case
[2015] FCA 684
Decision Date

CaseChat Overview and Summary

In the matter of Kim v Daebo International Shipping Co Ltd, the Federal Court of Australia was tasked with determining the recognition of foreign insolvency proceedings and the status of the foreign representative. The primary issue was whether the rehabilitation proceedings initiated by Mr. Kim in the Seoul Central District Court, Republic of Korea, should be recognised as a foreign proceeding and foreign main proceeding under the Cross-Border Insolvency Act 2008 (Cth) and the Model Law on Cross-Border Insolvency of the United Nations Commission on International Trade Law. Furthermore, the court had to decide if Mr. Kim should be recognised as the foreign representative for Daebo International Shipping Co Ltd, a company incorporated in Korea.

The court considered the nature of the Korean proceeding, whether it qualified as a foreign proceeding under Art 2(a) and Art 17(1) of the Model Law, and if it constituted a foreign main proceeding under Art 17(2). It also had to ascertain if Mr. Kim, the appointed representative in the Korean proceedings, met the criteria for a foreign representative under Art 2(d). Additionally, the court deliberated on the implications of recognising the foreign proceeding, specifically whether it should exercise its power under Art 21(1) to prohibit or stay actions concerning the debtor's assets, obligations, rights, or liabilities. The court also considered the scope of the stay or suspension and the impact on creditors with maritime claims under the Admiralty Act 1988 (Cth).

The Federal Court found that the Korean rehabilitation proceedings met the criteria for recognition as a foreign and foreign main proceeding under the Model Law. Mr. Kim was duly recognised as the foreign representative, authorised to administer the reorganisation of Daebo's assets and affairs. The court concluded that the Korean proceeding was a foreign main proceeding because it was taking place in Korea, where Daebo had its centre of main interests. The court further directed that any application for the issue of a warrant of arrest in Australia be dealt with by a judge of the Court, ensuring that the reasons for judgment in the matter and those in Yu v STX Pan Ocean Co Ltd (South Korea) (2013) FCR 189 were considered. The court ordered the publication of the recognition order in the Shipping Daily of Korea, The Australian, and Lloyd’s List Australia, and notified relevant Australian creditors.

The court's decision underscored the importance of recognising foreign insolvency proceedings to facilitate international cooperation in insolvency matters and protect the interests of creditors across jurisdictions. It highlighted the need for careful consideration of maritime claims and the potential impact on creditors with security interests in vessels owned or chartered by the debtor.

Orders

Orders of the court

1. Rehabilitation proceedings in the Seoul Central District Court in the Republic of Korea (Case 2015 HopeHap 100036) by which the Plaintiff was recognised as custodian of the Defendant on 6 March 2015 (the Korean proceeding) be recognised as a foreign proceeding within the meaning of Art 2(a) and Art 17(1) of Sch 1 to the Cross-Border Insolvency Act 2008 (Cth) (Model Law).

2. The plaintiff, Mr Chang-Jung Kim, be recognised as a foreign representative within the meaning of Art 2(d) to the Model Law.

3. The Korean proceeding be recognised as a foreign main proceeding pursuant to Art 17(2) of the Model Law.

4. The plaintiff cause to be published in:

(a) the Shipping Daily of Korea; and

(b) The Australian newspaper;

a notice of the making of this order in accordance with Form 21 of the Federal Court (Corporations) Rules 2000 on or before 14 May 2015.

5. The plaintiff cause to be published in the 14 May 2015 hard copy edition of Lloyd’s List Australia, a notice in the form a notice of the making of this order in accordance with Form 21 of the Federal Court (Corporations) Rules 2000.

6. On or before 12 May 2015, the plaintiff send a notice of the making of this order in accordance with Form 21 of the Federal Court (Corporations) Rules 2000 to each Australian creditor of the defendant known to the plaintiff, listed at Annexure A to the originating process filed on 14 April 2015.

7. Any application for issue of a warrant for the arrest in Australia of any vessel owned or chartered by the defendant, brought by a person claiming to hold a security interest, be made to a judge of this Court with the reasons for judgment for the orders made today and those in Yu v STX Pan Ocean Co Ltd (South Korea) (2013) FCR 189 drawn to the attention of the Court at the time any such application is made.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

This is why it is appropriate that, once a foreign proceeding has been recognised or an interim stay granted under Arts 19 or 20, and before an arrest warrant is issued, a judge (preferably one familiar with the principles of Admiralty and maritime law as well as insolvency law) consider the nature of the plaintiff’s proceeding in rem, including where a general maritime claim is asserted when that proceeding was filed, to determine whether the arrest ought occur. That is in contrast to the usual position where the registrar will issue an arrest warrant as of course once the requirements of the Admiralty Rules 1988 (Cth) are satisfied: see the discussion in Atlasnavios 215 FCR at 278-282 [61]-[74] and my conclusion at 285-286 [87]-[88]. The factual background Mr Kim’s evidence explained that Daebo had been incorporated in Korea on 14 February 2008. Its business objectives included marine cargo transport and other related activities. The evidence at the time of the application in the Korean Court was that Daebo operated a total of 19 vessels and that it: owned one, held bareboat charters, or demises, in respect of three others, and operated two more under what was described as “the financing lease agreement entered into between the debtor company and Shinhan Capital Co Limited”, the precise nature of which is not clear. In addition, Daebo operated five vessels under long-term time charters and a further eight under short-term charter parties of a kind not more precisely described. In its decision ordering that rehabilitation proceedings be commenced, the Korean Court ordered that lists of rehabilitation creditors, secured creditors and shareholders be submitted by 23 March 2015; that the reporting period for the rehabilitation claims, rehabilitation security rights and shares would cease on 3 April 2015; that the investigation period for those rehabilitation claims and security rights would be between 3 April 2015 and 17 April 2015; and that the first meeting of persons concerned would be held in the Korean Court on 12 May 2015. The Korean Court explained that Daebo’s “economic collapse” could be traced to the fact that the shipping industry had been in recession since 2009. It found that Daebo had uncollectable book debts of about USD49.69 million, which the Court said were due to a chain reaction of insolvencies of global shipping companies. It found that Daebo’s liquidity was deteriorating and the company had incurred USD61.77 million in damages by reason of its termination of charter parties. The Court said that Daebo also owed USD36.39 million in outstanding hire on charter parties. There is no evidence before me as to the precise conversion rates of Korean won (KRW). However, the Korean Court found that, as at 31 December 2014, Daebo’s current liabilities exceeded its current assets by nearly KRW100 billion, and that its total liabilities exceeded its total assets by about KRW20 billion. Accordingly, the Korean Court found that Daebo:is in a state where [it] would not be able to repay its debts that are due without creating a considerable hindrance to the continuation of its business and there is a possibility of occurrences leading [Daebo] to bankruptcy …

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Accordingly, I am satisfied that the requirements of Art 15(3) and s 13 of the Cross-Border Insolvency Act have been met by the identification of all foreign proceedings in respect of the debtor known to the foreign representative as well as his evidence that there are not such proceedings in this country.Conclusion For these reasons, I am satisfied that the Korean proceeding should be recognised as a foreign, and foreign main, proceeding and that Mr Kim be recognised as a foreign representative. I will make directions that these orders be advertised in the Shipping Daily of Korea and The Australian and be notified to each of the four Australian creditors who have been served with notice of these proceedings and have not responded. I will also make an order in terms of the order that Buchanan J made in Yu 223 FCR 189 that any application for the issue of a warrant of arrest in Australia of any vessel owned or chartered by the defendant be dealt with by a Judge of this Court, and that his and these Reasons for Judgment be drawn to the attention of the Court at the time any such application is made.

Ratio Decidendi

Legal Principle Established

In bringing these proceedings, Mr Kim complied with par 6.1 of Practice Note Corporations 2 which required him to bring to the Court’s specific attention the decision in Yu 223 FCR 189. Consideration The evidence before the Korean Court established that Daebo has one head office in Seoul and no branch offices, that it employs four registered officers and 31 full-time employees. I am satisfied on the evidence before me that the presumption in Art 16(3) of the Model Law, that Daebo’s registered office is its centre of main interests, is the actual position. Accordingly, on the evidence before me I am satisfied that the Korean proceeding is a foreign proceeding, being a judicial proceeding in Korea pursuant to a law relating to insolvency in which the assets and affairs of Daebo are subject to control or supervision by the Korean Court for the purpose of reorganisation within the meaning of “foreign proceeding” in Arts 2(a) and 17(1)(a). I am also satisfied that the Korean proceeding is a foreign main proceeding, because it is taking place in Korea, where Daebo has its centre of main interests. I am satisfied that Mr Kim is a foreign representative, being a person authorised in the Korean proceeding to administer the reorganisation of Daebo’s assets and affairs or to act as its representative in the foreign proceeding within the meaning of Arts 2(d) and 17(1)(b). The Korean proceedings for reorganisation are similar in character to those considered by Buchanan J in Yu 223 FCR 189, and by Jacobson J in Hur v Samsun Logix Corporation [2009] FCA 372. The requirements for recognition in Art 15 have been established by the certified copy of the Korean Court’s decision and its orders of 6 March 2015, commencing the foreign proceedings and appointing Mr Kim as foreign representative. Daebo applied for provisional relief under Art 19, relating to recognition of the Korean proceedings in three other jurisdictions, namely, in the United States of America on 19 March 2015, in Japan on 9 March 2015 and in the United Kingdom on 16 March 2015. In its application to the Korean Court, Daebo also identified a number of foreign proceedings, including arbitrations, in countries other than Korea to which it was party. Accordingly, I am satisfied that the requirements of Art 15(3) and s 13 of the Cross-Border Insolvency Act have been met by the identification of all foreign proceedings in respect of the debtor known to the foreign representative as well as his evidence that there are not such proceedings in this country.Conclusion For these reasons, I am satisfied that the Korean proceeding should be recognised as a foreign, and foreign main, proceeding and that Mr Kim be recognised as a foreign representative. I will make directions that these orders be advertised in the Shipping Daily of Korea and The Australian and be notified to each of the four Australian creditors who have been served with notice of these proceedings and have not responded. I will also make an order in terms of the order that Buchanan J made in Yu 223 FCR 189 that any application for the issue of a warrant of arrest in Australia of any vessel owned or chartered by the defendant be dealt with by a Judge of this Court, and that his and these Reasons for Judgment be drawn to the attention of the Court at the time any such application is made.