Understanding "Rule B attachments"

Back in January, I blogged about Armada filing for Chapter 15

Armada, a Singapore based carrier filed for Chapter 15. I had never heard of Chapter 15 until recently. Apparently it allows foreign companies to reorganize outside of the U.S., and protects them from U.S. creditors.

Recently I have been reading about "Rule B attachments", and the surprise some shipping companies got when suddenly monies were taken because of these.

Rule B Attachments are popular because they are effective. In Winter Storm Shipping, Ltd. v. TPI, the Court of Appeals for the Second Circuit held a Rule B Attachment can intercept and attach an electronic funds transfer (EFT) in the hands of an intermediary bank, including the New York Clearing House banks in Manhattan that process virtually all transfers of U.S. currency (or USD transfers) made worldwide. Because shipping industry transactions are generally in U.S. currency and usually pass through one of the New York Clearing House banks, Rule B Attachment proceedings have become exceptionally popular in the Southern District of New York (which includes Manhattan) where they now comprise approximately 30% of all new cases filed.

And, one way to avoid this is to file Chapter 15

Foreign companies can protect themselves through Chapter 15 of the Bankruptcy Code. Although Chapter 15 does not commence a full-blown bankruptcy case within the United States, it can provide a foreign debtor in an insolvency proceeding outside of the United States with certain protections, including the automatic stay, to protect assets in the United States. Specifically, a foreign shipping company that has commenced an insolvency proceeding abroad, may be able to stay all actions against it, including pending Rule B Attachments, by filing a Chapter 15 case soon after the commencement of its foreign proceedings. The Board of Directors of Armada (Singapore) Pte. Ltd. recently filed a chapter 15 petition in the Bankruptcy Court for the Southern District of New York for recognition of the company's insolvency proceeding in Singapore, for exactly that reason – to protect its assets against potential Rule B Attachments.